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Chapter 12: Macroeconomics AD (page 239)

what is aggregate demand

Short Answer

Expert verified

total expenditure of households, firms, governments and spending on net exports

Step by step solution

01

Aggregate Demand definition

Aggregate demand(AD) is the total planned spending on the goods and services produced within the economy in a particular period, such as a year. With aggregate demand, we are measuring how much is being spent on goods and services, by all consumers, businesses, the government, people, and firms overseas

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Most popular questions from this chapter

True or False. Decreases in AD normally lead to decreases in both output and the price level.

Suppose that the table presented below shows an economy’s relationship between real output and the inputs needed to produce that output:

Input QuantityReal GDP
150.0\(400
112.5300
75.0200

  1. What is productivity in this economy?

  2. What is the per-unit cost of production if the price of each input unit is \)2?

  3. Assume that the input price increases from \(2 to \)3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy’s aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output?

  4. Suppose that the increase in input price does not occur but, instead, that productivity increases by 100 percent. What would be the new per-unit cost of production? What effect would this change in per-unit production cost have on the economy’s aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output?

Answer the following questions on the basis of the following three sets of data for the country of North Vaudeville:

(A)
(B)
(C)
Price Level
Real GDP
Price Level
Real GDP
Price Level
Real GDP
110275100200110225
100250100225100225
9522510025095225
9020010027590225

  1. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville? The short-run? The long run?

  2. Assuming no change in hours of work, if real output per hour of work increases by 10 percent, what will be the new levels of real GDP in the right column of A? Do the new data reflect an increase in aggregate supply or do they indicate a decrease in aggregate supply?

Which of the following help to explain why the aggregate demand curve slopes downward?

  1. When the domestic price level rises, our goods and services become more expensive to foreigners.

  2. When government spending rises, the price level falls.

  3. There is an inverse relationship between consumer expectations and personal taxes.

  4. When the price level rises, the real value of financial assets (like stocks, bonds, and savings account balances) declines.

What shifts the aggregate demand curve?
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