. From March 2009 to 2013, the U.S. stock market more than doubled in value. How might...
. From March 2009 to 2013, the U.S. stock market more than doubled in value. How might this have affected aggregate demand? What happens to aggregate demand when the stock market plunges?
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Homework Answers
With the stock market doubling in value, the value of people’s
money invested in stock market will also double. This means the
people or investors would be better off and there purchasing power
would increase. As a result, their demand for goods and services
would increase, shifting the AD curve to the right. Keeping AS
unchanged, this leads to an increase in both price level and GDP in
the economy.
Similarly, when the stock market plunges, the investor money would lose value and they would be worse off, leading to a reduction in their demand for goods and services, shifting the AD curve to the left.
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