Suppose that consumption is C= C+c(YT), I=abr; (M/P)=dY/r , where c is the MPC, b is the slope of investment demand curve, and d is a variable measuring the responsiveness of money demand to changes in income. Hint (parts b-d): find the equilibrium level of GDP corresponding to the intersection of the IS and LM curves and use the resulting equation to solve for the price P as a function of GDP, i.e. the AD curve.

(1) How does the marginal propensity to consume affect the slope of the AD curve? Explain your answer intuitively.

(2) How does the slope of the investment demand curve affect the the slope of the AD curve? Explain your answer intuitively.

(3) How does the responsiveness of money demand to changes in income affect the slope of the AD curve? Explain your answer intuitively.