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Chapter 12: Macroeconomics (page 428)

How does aggregate demand effect economic growth?

Short Answer

Expert verified

An increase or decrease in the components of aggregate demand will have an effect on economic growth.

Step by step solution

01

Aggregate Demand

if there is an increase in the components of aggregate demand such as higher consumption levels, more investments of firms in projects, more government spendings on infrastructure, or increased exports in trade, then there will be increased economic growth. Conversely, a decrease in these components will lead to a decrease in aggregate demand and hence a fall in economic growth.

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Most popular questions from this chapter

Why do you think gas prices rose in the recessions of the 1970s but fell after the Great Recession?

Suppose the economy is initially at the potential output and the quantity of aggregate output supplied increases. What information would you need to determine whether this was due to a movement along the SRAS curve or a shift of the LRAS curve?

Determine the effect on short-run aggregate supply for each of the following events. Explain whether it represents a movement along the SRAS curve or a shift of the SRAS curve.

a. A rise in the consumer price index (CPI) leads producers to increase output.

b. A fall in the price of oil leads producers to increase output.

c. A rise in legally mandated retirement benefits paid to workers leads producers to reduce output.

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