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MGEA05H3 Chapter Notes - Chapter 12: Price Level, Aggregate Demand, Aggregate Supply

Canada

Introduction to Macroeconomics

Economics for Management Studies

Michael H O

University of Toronto Scarborough

Introduction to Microeconomics

<p>which of the following best describes why the aggregate demand curve is downward sloping?</p>
<p>a. As the aggregate price level decreases, the stock of existing physical capital increases.</p>
<p>b. As the aggregate price level increases, consumer expectations about future change.</p>
<p>c. An increase in the aggregate price level causes consumer and investment spending to fall because consumer purchasing power decreases and money demand increases.</p>
<p>d. As a good's price increases, holding all else constant, the good's quantity demanded decreases.</p>

<p dir="ltr" role="presentation">What is aggregate demand?</p>
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<h2 dir="ltr" style="line-height: 1.38; margin-top: 0pt; margin-bottom: 0pt;" role="presentation"><span style="font-size: 10pt; background-color: transparent; font-weight: 400; font-variant-numeric: normal; font-variant-east-asian: normal; vertical-align: baseline; white-space: pre-wrap;">What is Aggregate Demand?</span></h2>
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<li dir="ltr" style="list-style-type: lower-alpha; font-size: 10pt; font-family: Nunito, sans-serif; background-color: transparent; font-variant-numeric: normal; font-variant-east-asian: normal; vertical-align: baseline; white-space: pre;">
<p dir="ltr" style="line-height: 1.38; margin-top: 0pt; margin-bottom: 0pt;" role="presentation"><span style="font-size: 10pt; background-color: transparent; font-variant-numeric: normal; font-variant-east-asian: normal; vertical-align: baseline; white-space: pre-wrap;">Aggregate Demand refers to the total expenditure on domestic goods and services within an economy. The Aggregate Demand (AD) thus represents the relationship between the total quantity of output demanded in the economy and the overall price level. Like the basic demand curve, the AD curve also slopes downward to reflect the inverse relationship between aggregate price and aggregate quantity demanded.</span></p>
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<div>The aggregate demand curve slopes downward indicating that:</div>
<div>a. an increase in the general price level will increase the aggregate quantity of goods and services demanded.</div>
<div>b. consumers substitute between domestic-made and foreign-made goods as their relative prices change.</div>
<div>c. a change in the interest rate will alter the aggregate quantity of goods and services demanded.</div>
<div>d. an increase in the general price level will reduce the aggregate quantity of goods and services demanded.</div>

MGEA05H3 Chapter Notes - Chapter 12: Price Level, Aggregate Demand, Aggregate Supply

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