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Chapter 8: Problem 1

Is aggregate demand a specific dollar amount? For example, is it correct to say that aggregate demand is $$\$ 9$$ trillion this year?

Short Answer

Expert verified
No, aggregate demand is not a specific dollar amount. It's an economic measure representing total spending on goods and services in an economy at a given time. However, it can be measured and expressed in dollar terms, which in a certain context could be \$9 trillion.

Step by step solution

01

Understanding Aggregate Demand

Aggregate Demand is an economic measure that reflects the total amount of goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services. At a basic level, aggregate demand is the total demand for final goods and services in an economy at a given time and price level.
02

Interpretation of Aggregate Demand

While Aggregate Demand reflects the amount of goods and services, it should not be confused with specific dollar amounts. Rather, it is a reflection of the overall spending by households, businesses, and the government within an economy.
03

Relation to the question

To directly answer the provided question - it's incorrect to inherently define aggregate demand as a specific dollar amount like \$9 trillion in a year. Aggregate demand is a more abstract concept reflecting the total spending within an economy, but it can be measured and expressed in dollar terms based on the total spending in an economy in a given year, which in this case could hypothetically be \$9 trillion.

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Most popular questions from this chapter

Will a direct increase in the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in aggregate demand? Will a change in the exchange rate that subsequently increases the price of U.S. goods relative to foreign goods lead to a change in the quantity demanded of Real GDP or to a change in aggregate demand? Explain your answers.

Explain what happens to aggregate demand in each of the following cases: a. The interest rate rises. b. Wealth falls. c. The dollar depreciates relative to foreign currencies. d. Households expect lower prices in the future. e. Business taxes rise.

Under what conditions can consumption rise without some other spending component declining?

Can total spending be a greater dollar amount than the money supply? Explain your answer.

In the short run, what is the impact on the price level and Real GDP of each of the following? a. An increase in consumption brought about by a decrease in interest rates b. A decrease in exports brought about by the dollar appreciating c. A rise in wage rates d. A beneficial supply shock e. An adverse supply shock f. A decline in productivity
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