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Chapter 20: Problem 1

The aggregate demand curve is defined as the a. net national product. b. sum of wages, rent, interest, and profits. c. real GDP purchased at different possible price levels. d. total dollar value of household expectations.

Short Answer

Expert verified
The aggregate demand curve is defined as the \(c\) real GDP purchased at different possible price levels.

Step by step solution

01

1. Analyzing option A

Net national product does not represent the aggregate demand curve because the aggregate demand curve is a graphical representation of the total demand for goods and services in an economy at various price levels. Net national product is a measure of economic value, but it does not describe the relationship between price levels and GDP.
02

2. Analyzing option B

The sum of wages, rent, interest, and profits might contribute to aggregate demand, as they represent the income earned in an economy. However, this option doesn't account for the relationship between price levels and the quantity of real GDP demanded, which is the main characteristic of the aggregate demand curve.
03

3. Analyzing option C

Real GDP purchased at different possible price levels is the most accurate description of the aggregate demand curve. As price levels increase, the quantity of real GDP demanded decreases, creating a downward-sloping curve. This option captures the relationship between price levels and real GDP, which makes it the correct choice for defining the aggregate demand curve.
04

4. Analyzing option D

The total dollar value of household expectations does not define the aggregate demand curve. Although household expectations play a role in determining consumption and saving behavior, they do not explicitly represent the relationship between price levels and the quantity of real GDP demanded. After analyzing all options, the correct choice is:
05

Conclusion

The aggregate demand curve is defined as the (c) real GDP purchased at different possible price levels.

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Most popular questions from this chapter

Macroeconomic equilibrium occurs when a. aggregate supply exceeds aggregate demand. b. the economy is at full employment. c. aggregate demand equals aggregate supply. d. aggregate demand equals the average price level.

Classical economists believed that the a. price system was stable. b. goal of full employment was impossible. c. price system automatically adjusts the economy to full employment in the long run. d. government should attempt to restore full employment.

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called the a. real balances effect. b. interest-rate effect. c. net exports effect. d. substitution effect.

The real balances effect occurs because a higher price level reduces the real value of people's a. financial assets. b. wages. c. unpaid debt. d. physical investments.

Along the classical or vertical range of the aggregate supply curve, a decrease in the aggregate demand curve will decrease a. both the price level and real GDP. b. only real GDP. c. only the price level. d. neither real GDP nor the price level.
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