Distinguish between real-balances effect and wealth effect, Econometrics

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Distinguish between real-balances effect and wealth effect

1. Why is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?

2. Distinguish between "real-balances effect" and "wealth effect," as the terms are used in this chapter. How does each relate to the aggregate demand curve?

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Econometrics: Distinguish between real-balances effect and wealth effect

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