12 Questions
What happens to the aggregate demand curve when consumption spending, investment spending, government spending, and spending on exports minus imports increase?
The aggregate demand curve shifts to the right.
What is the effect on the equilibrium quantity of output and the price level when the aggregate demand curve shifts to the left?
The equilibrium quantity of output and the price level will fall.
What determines how much the equilibrium output changes relative to the price level when the aggregate demand curve shifts?
The point of intersection between the aggregate demand curve and the aggregate supply curve.
What are the four components that make up aggregate demand?
Consumption spending, investment spending, government spending, and spending on exports minus imports.
Why might the aggregate demand curve shift to the right or left?
Due to changes in personal choices, such as consumer or business confidence, or policy choices, such as changes in government spending and taxes.
What is the purpose of the aggregate demand/aggregate supply model?
To show what determines total supply or total demand for the economy and how total demand and total supply interact at the macroeconomic level.
What happens to the AD curve when any of its components increase?
The AD curve shifts to the right, leading to a greater real GDP and upward pressure on the price level.
What is the effect on the AD curve when consumer or business confidence drops?
The AD curve shifts to the left, leading to a lower real GDP and a lower price level.
What happens to the equilibrium when the AD curve shifts to the right?
The equilibrium moves to a higher quantity of output and a higher price level.
What are the two broad categories that can cause AD curves to shift?
Changes in the behavior of consumers or firms and changes in government tax or spending policy.
How does a rise in confidence affect aggregate demand?
It leads to an increase in consumption and investment demand, resulting in a rightward shift in the AD curve.
What can sometimes affect economic confidence, aside from macroeconomic realities?
Factors such as a risk of war, election results, foreign policy events, or a pessimistic prediction about the future by a prominent public figure.
Learn about the aggregate demand/aggregate supply model, which determines total supply and total demand for the economy. Understand how different components such as consumption spending, investment spending, government spending, and net exports impact the aggregate demand curve.
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