Chapter Three: Aggregate Demand Analysis of Closed Economy Quiz
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Questions and Answers

What does aggregate demand represent in an economy?

  • Total amount of capital demanded by economic agents
  • Total amount of services demanded by economic agents
  • Total amount of money demanded by economic agents
  • Total amount of goods demanded by economic agents (correct)

    • How would you describe the relationship between quantity of output demanded and the aggregate level of prices?

  • Random relationship
  • Inverse relationship (correct)
  • No relationship
  • Direct relationship

    • In the context of aggregate demand, what happens to AD when prices decrease?

  • AD remains constant
  • AD increases (correct)
  • AD becomes unpredictable
  • AD decreases

    • What effect does a decrease in price level have on real money balances?

    <p>Real money balances increase</p> Signup and view all the answers

    Which component is not a part of the components of aggregate demand?

    <p>Inflation Spending (IS)</p> Signup and view all the answers

    What happens to real money balances when the price level is lower?

    <p>Real money balances are higher</p> Signup and view all the answers

    What is aggregate demand?

    <p>The total amount of goods demanded by economic agents in the economy</p> Signup and view all the answers

    How does a decrease in price level affect aggregate demand?

    <p>Increases aggregate demand</p> Signup and view all the answers

    In the context of aggregate demand analysis, what happens when output is higher?

    <p>Consumers need higher real money balances</p> Signup and view all the answers

    Which component of aggregate demand represents foreign spending?

    <p>Net export (NX)</p> Signup and view all the answers

    What happens to aggregate demand when the price level increases?

    <p>Decreases as consumers can buy less</p> Signup and view all the answers

    How do real money balances change when the price level decreases?

    <p>Increase</p> Signup and view all the answers

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