DD and AA curve

DD and AA curve

DD and AA curve

DD and AA curve:In an economy, a change in one or more of the exogenous variables is the main cause for disequilibrium and the adjustment to the state of equilibrium. The AA-DD model is a set of three market models comprising of the foreign exchange market, the money market and lastly the goods and services market.

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The AA curve can be described as the curve representing the asset market equilibrium that is derived from the changes in the money markets and foreign exchange markets (Langdana, 2009, p. 65). On the other hand, the DD curve usually represents the demand equilibrium of the goods markets. The intersection of the two curves represents a simultaneous market equilibrium by each of the three markets known as super equilibrium.

The monetary policy is used to ignite or slow the economy as controlled by the central bank. Its main purpose is to create an easy money environment. The low interest rates leads to an increase in the spending of both the consumer and fixed capital rate which increases the current rate of equilibrium national income. There will be an upsurge of income in the future due to the large capital stock from the increased investment spending.

Langdana, F. K. (2009). Macroeconomic policy: Demystifying monetary and fiscal policy. New York, NY: Springer.

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