Macroeconomics: Factors Affecting Aggregate Demand
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Questions and Answers

What happens to the overall demand within the economy when firms are optimistic?

  • It remains unchanged
  • It decreases
  • It becomes unstable
  • It increases (correct)

    • What is the short-run effect of an increase in aggregate demand?

  • Prices increase; Output decreases
  • Prices increase; Output increases (correct)
  • Prices decrease; Output increases
  • Prices decrease; Output decreases

    • What does not influence the Natural Rate of Output or LRAS?

  • Labour
  • Capital
  • Price changes (correct)
  • Natural Resources

    • What can cause a shift in the Aggregate Supply curve?

    <p>Improvement in productivity</p> Signup and view all the answers

    What is the purpose of expansionary fiscal policy during a recession?

    <p>To increase aggregate demand and ease the recession</p> Signup and view all the answers

    What can the government use to influence aggregate demand?

    <p>Fiscal policy</p> Signup and view all the answers

    What is the result of the wealth effect on Aggregate Demand?

    <p>AD rises</p> Signup and view all the answers

    What happens to consumer spending when interest rates rise?

    <p>It decreases</p> Signup and view all the answers

    What is the effect of a lower price level on the demand for exports?

    <p>It increases the demand for exports</p> Signup and view all the answers

    What is the normal rate of output around which the actual rate of output fluctuates?

    <p>Natural Rate of Output</p> Signup and view all the answers

    What is the effect of an increase in firm optimism on the Aggregate Demand curve?

    <p>It shifts the AD curve to the right</p> Signup and view all the answers

    What does a change in C, I, G, or NX do to the Aggregate Demand curve?

    <p>It shifts the AD curve to the right</p> Signup and view all the answers

    What does the aggregate demand curve represent in an economy?

    <p>The total demand for all finished goods and services</p> Signup and view all the answers

    What is the formula for aggregate demand?

    <p>AD = C + I + G + (X-M)</p> Signup and view all the answers

    Why does the aggregate demand curve slope downward?

    <p>Because an increase in the price level decreases the purchasing power of households</p> Signup and view all the answers

    What is the natural rate of unemployment influenced by?

    <p>Labour, Capital, and Natural Resources</p> Signup and view all the answers

    What is the opportunity cost of unemployment?

    <p>The goods and services that could have been produced if the unemployed were working</p> Signup and view all the answers

    What is one of the costs of unemployment to the individual?

    <p>Loss of earnings</p> Signup and view all the answers

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