Economics SL
4
Chapters
96
Notes
Unit 1 - Intro to Econ & Core Concepts
Unit 2 - Microeconomics
Unit 3 - Macroeconomics
Unit 4 - The Global Economy
Economics SL
Unit 3 - Macroeconomics
Impact Of Contractionary Monetary Policy On Aggregate Demand
480 words
3 mins read
Last edited on 5th Nov 2024
Table of content
What's happening when inflation strikes
- Inflation = Prices rising fast! 😲
- Imagine your favorite chocolate bar cost suddenly skyrocketing. Not cool, right?
- Inflationary Gap = Economy's going too fast, like a car speeding.
Policymakers to the rescue
- They'll use contractionary (or tight) monetary policy to slow things down.
- Imagine they're hitting the brakes on the economy car.
How do they do it
- Increase interest rates by decreasing the money supply
- Selling bonds through open market.
- Like turning down the tap of money.
The effects on spending (AD- Aggregate Demand)
- Consumption (C)
- Borrowing becomes more expensive: Like if your credit card's interest skyrocketed, you'd buy fewer video games.
- People save more, spend less: Like putting more allowance in the piggy bank instead of buying snacks.
- Investment (I)
- Businesses find it costly to borrow: So they'll build fewer new shops.
- Opportunity cost rises for investment: If you had to choose between buying a bike or investing the money, higher interest might make you invest.
- Net Exports (NX)
- Country’s currency value goes up: Imagine the dollar getting a power-up; it costs more for other countries to buy our stuff.
- Exports become expensive, decreasing sales abroad: Like if our chocolate bars cost too much in another country, they'd buy fewer.
Unlock the Full Content! 
Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟
Economics SL
Unit 3 - Macroeconomics
Impact Of Contractionary Monetary Policy On Aggregate Demand
480 words
3 mins read
Last edited on 5th Nov 2024
Table of content
What's happening when inflation strikes
- Inflation = Prices rising fast! 😲
- Imagine your favorite chocolate bar cost suddenly skyrocketing. Not cool, right?
- Inflationary Gap = Economy's going too fast, like a car speeding.
Policymakers to the rescue
- They'll use contractionary (or tight) monetary policy to slow things down.
- Imagine they're hitting the brakes on the economy car.
How do they do it
- Increase interest rates by decreasing the money supply
- Selling bonds through open market.
- Like turning down the tap of money.
The effects on spending (AD- Aggregate Demand)
- Consumption (C)
- Borrowing becomes more expensive: Like if your credit card's interest skyrocketed, you'd buy fewer video games.
- People save more, spend less: Like putting more allowance in the piggy bank instead of buying snacks.
- Investment (I)
- Businesses find it costly to borrow: So they'll build fewer new shops.
- Opportunity cost rises for investment: If you had to choose between buying a bike or investing the money, higher interest might make you invest.
- Net Exports (NX)
- Country’s currency value goes up: Imagine the dollar getting a power-up; it costs more for other countries to buy our stuff.
- Exports become expensive, decreasing sales abroad: Like if our chocolate bars cost too much in another country, they'd buy fewer.
Unlock the Full Content!
Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟