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How does aggregate demand affect gdp and eliminate the GDP gap? How does the slope of the aggregate supply curve affect fiscal policy actions necessary to eliminate the GDP gap?

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Vaishnavi Kanukurti
Vaishnavi KanukurtiLv10
25 Oct 2020

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Related questions

1. Does the Aggregate Demand (AD) curve always slope downward? Discuss and use explanations (interest rate effect, wealth effects, open economy effect).

2. The Aggregate Supply (AS) curve slopes upward to reflect the profit motive of businesses. So, why there are two versions of the AS curve( i.e. short run and long- run). Discuss.

3. Does Aggregate Demand and Aggregate Supply always occur at full-employment level?

a) If yes, will there be some unemployment? Explain

b) If no, then the actual real GDP may be different from the potential real GDP. When the actual and potential GDP are not the same, then the economy is either in a recessionary gap or inflationary gap. Explain

Why is there a "two-way" link between consumption and GDP? ❢ How does an increase in disposable income affect the consumption function? An increase in expected future income? ❢ If the consumption function shifts upward, what happens to the saving function? Why? ❢ When is actual aggregate expenditure different from planned aggregate expenditure? Why happens to being the two back to equality? ❢ Explain why income taxes reduce the size of the expenditure multiplier. ❢ When the equilibrium real GDP is below potential GDP, how does the unemployment rate compare with the natural rate? What is the results of this state of affairs that restores the long-run equilibrium? ❢ What is a recessionary gap? How does the economy adjust to eliminate a recessionary gap?

How are aggregate demand and GDP related? What is the role of aggregate demand in the GDP gap?

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