Adding the financial friction to the AS/AD model is represented by a downward movement along the AD curve.

Name: Adding the financial friction to the AS/AD model is represented by a downward movement along the AD curve.
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Question

Quizplus · Accepted Answer

Adding financial frictions to the AS/AD model typically shifts the AD curve to the left, not a movement along the curve. A movement along the AD curve would be caused by changes in the price level, not by changes in financial conditions.

Adding the Financial Friction to the AS/AD Model Is Represented