Aggregate Demand and Aggregate Supply

Front

Aggregate demand consists of

Back

the quantity of real output that all buyers in an economy want to buy at different price levels

Answer explanation

Aggregate demand refers to the total quantity of real output that all buyers in an economy wish to purchase at various price levels, making the correct choice the one that encompasses all buyers.

Front

Which of the following is not a component of aggregate demand?

• consumption and investment spending
• government spending
• import minus export spending
• net export spending

Back

import minus export spending

Answer explanation

Import minus export spending is not a component of aggregate demand. Aggregate demand includes consumption, investment, government spending, and net exports, which is exports minus imports.

Front

A leftward shift in the aggregate demand curve may occur as a result of:

• falling interest rates that lower the cost of borrowing
• decreases in income and business taxes that increase after tax incomes and profit
• falling consumer and corporate indebtedness
• worsening consumer and business confidence

Back

worsening consumer and business confidence

Answer explanation

A leftward shift in the aggregate demand curve indicates a decrease in demand. Worsening consumer and business confidence leads to reduced spending and investment, causing this shift.

Front

A rightward shift in the aggregate demand curve may occur as a result of:
- increases in interest rates that raise the cost of borrowing
- an improvement in technology that increases investment spending
- increases in income and business taxes that reduce incomes and profits
- a government decision to reduce spending on education

Back

an improvement in technology that increases investment spending

Answer explanation

An improvement in technology boosts productivity and leads to increased investment spending, shifting the aggregate demand curve rightward. The other options either decrease demand or do not directly stimulate it.

Front

The total quantity of goods and services produced in any economy at different prices levels is shown by the

Back

AS curve

Answer explanation

The AS curve, or Aggregate Supply curve, represents the total quantity of goods and services produced in an economy at different price levels, making it the correct choice for this question.

Front

The LRAS curve

Back

All of the above: is not affected by changes in aggregate demand, is vertical at the level of potential or full employment output, reflects the idea that in the long run, output is independent of the price level.

Answer explanation

The LRAS curve is vertical at potential output, indicating that in the long run, output is unaffected by price levels or changes in aggregate demand. Thus, all statements about the LRAS curve are correct.

Front

The short-run aggregate supply curve shows that

Back

as the price level increases, firms produce more output

Answer explanation

The short-run aggregate supply curve indicates that as the price level increases, firms are incentivized to produce more output due to higher potential revenues, making this the correct choice.

Front

When equilibrium real GDP is less than the full employment level of real GDP, the economy is probably experiencing

Back

a deflationary gap

Answer explanation

When equilibrium real GDP is below full employment GDP, it indicates underutilization of resources, leading to a deflationary gap. This means the economy is not producing at its potential, resulting in higher unemployment.

Front

When short-run aggregate supply increases, the SRAS curve

Back

shifts to the right

Answer explanation

When short-run aggregate supply increases, the SRAS curve shifts to the right, indicating that more goods and services are available at every price level, which is the correct response.

Front

Which of the following can cause a rightward shift of the SRAS curve?

• a fall input prices
• a rise in input prices
• an increase in costs of production
• a negative supply shock

Back

a fall input prices

Answer explanation

A fall in input prices reduces production costs, allowing firms to produce more at every price level, leading to a rightward shift of the SRAS curve. The other options increase costs or create negative impacts on supply.