1. An introduction to the AD-AS model
The AD-AS (aggregate demand and aggregate supply) model is a useful simplification of the macroeconomy. The horizontal axis of a diagram of the AD and AS curves measures:
The price of one particular "representative" good produced in the economy
The amount of one particular "representative" good produced in the economy
An economy's price level
co An economy's real GDP
The vertical axis of a diagram of the AD and AS curves measures:
The price of a particular "representative" good produced in the economy
An economy's price level
An economy's real GDP
The amount of a particular "representative" good produced in the economy
2. Why does the aggregate demand curve slope downward?
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed.
Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply.
- A lower price level increases the real value of consumers' assets.
- A higher price level leads to a higher interest rate.
- A higher price level decreases consumption through the substitution effect.
3. Determinants In aggregate demand
The following graph shows an Increase In aggregate demand (AD) In a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded at a price level of 130 to rise from $400 billion to ;600 billion.
The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to Increase aggregate demand.