AD-AS Model - Slope of AD Curve

Slope of AD Curve

The slope of AD curve reflects the extent to which the real balances change the equilibrium level of spending, taking both assets and goods markets into consideration. An increase in real balances will lead to a larger increase in equilibrium income and spending, the smaller the interest responsiveness of money demand and the higher the interest responsiveness of investment demand. An increase in real balances leads to a larger level of income and spending, the larger the value of multiplier and the smaller the income response of money demand.

This implies that: The AD curve is flatter, smaller is the interest responsiveness of the demand for money and larger is the interest responsiveness of investment demand. Also, the AD curve is flatter, the larger is the multiplier and the smaller the income responsiveness of the demand for money.