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Chapter 10: Q. 2 LO (page 212)

Explain why the aggregate demand curve slopes downward and list key factors that cause this curve to shift

Short Answer

Expert verified

Whenever key aspects such as discretionary income, domestic investment, state spending, commodities, and importation expand, the aggregate supply leans downhill.

Step by step solution

01

Given Information 

Just because price goes up, clients' real income falls, and spending falls,the combination supply trends lower. The affluence initiative allows expenditure to decline as that the final indicator amount increases.

02

Explanation

The economists in the current era have selected a formula, with the help of which they find the aggregate demand.
Shifts are caused by changes within the value of the formula's input variables: consumer spending, investment expenditure, government spending, exports, and imports.

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Most popular questions from this chapter

Evaluate likely reasons for persistent inflation in recent decades

Why might a return of the U.S. population growth rate to its prior level also tend to boost the growth of U.S. Long-run aggregate supply? (Hint: Recall that real GDP growth is generated by the contributions of growth in labour and capital and growth in productivity of these resources.)

Continuing from Problem 10-2,suppose that the full-employment level of nominal GDP in the following year rises to 21.85trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if LRAS and AD shift rightward by the same amount.)

Consider the diagram below when answering the questions that follow.

a. Suppose that the current price level is P2. Explain why the price level will decline toward P1.

b. Suppose that the current price level is P3. Explain why the price level will rise toward P1.

In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.

a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?

b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.
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