Economy A and Economy B are similar in every way except that in Economy A, 70percent of aggregate expenditure is sensitive to changes in the real interest rate and in economy B, only 50 percent of aggregate expenditure is sensitive to changes in the real interest rate.
(a) Which economy will have a steeper aggregate expenditure curve?
(b) How would the dynamic aggregate demand curves differ given that the monetary policy reaction curve is the same in both countries?
Explain your answers.