18 Questions
What happens to the overall demand within the economy when firms are optimistic?
It increases
What is the short-run effect of an increase in aggregate demand?
Prices increase; Output increases
What does not influence the Natural Rate of Output or LRAS?
Price changes
What can cause a shift in the Aggregate Supply curve?
Improvement in productivity
What is the purpose of expansionary fiscal policy during a recession?
To increase aggregate demand and ease the recession
What can the government use to influence aggregate demand?
Fiscal policy
What is the result of the wealth effect on Aggregate Demand?
AD rises
What happens to consumer spending when interest rates rise?
It decreases
What is the effect of a lower price level on the demand for exports?
It increases the demand for exports
What is the normal rate of output around which the actual rate of output fluctuates?
Natural Rate of Output
What is the effect of an increase in firm optimism on the Aggregate Demand curve?
It shifts the AD curve to the right
What does a change in C, I, G, or NX do to the Aggregate Demand curve?
It shifts the AD curve to the right
What does the aggregate demand curve represent in an economy?
The total demand for all finished goods and services
What is the formula for aggregate demand?
AD = C + I + G + (X-M)
Why does the aggregate demand curve slope downward?
Because an increase in the price level decreases the purchasing power of households
What is the natural rate of unemployment influenced by?
Labour, Capital, and Natural Resources
What is the opportunity cost of unemployment?
The goods and services that could have been produced if the unemployed were working
What is one of the costs of unemployment to the individual?
Loss of earnings
Learn about the factors that influence the aggregate demand curve, including the wealth effect, interest rate effect, and foreign trade effect. Understand how these factors impact consumer spending and investment.
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