Determinants of aggregate demandThe following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion. 170160150+-+140130120AD110AD2100907008006005004003001002000OUTPUT (Billions of dollars)The following table lists several determinants of aggregate demandPRICE LEVEL Complete the table by indicating the change in each determinant necessary to decrease aggregate demand.Change Needed to Decrease ADConsumer expectations about future profitabilityGovernment spendingInterest ratesThe value of the domestic currency relative to the foreign currency

The changes in the determinants that will lead to a fall in aggregate demand are:Consumer…

Answered: 170 160 150 +-+ 140 130 120 AD 110 AD2…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Determinants of aggregate demand

The following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion.

170
160
150
+-+
140
130
120
AD
110
AD2
100
90
700
800
600
500
400
300
100
200
0
OUTPUT (Billions of dollars)
The following table lists several determinants of aggregate demand
PRICE LEVEL

Complete the table by indicating the change in each determinant necessary to decrease aggregate demand.
Change Needed to Decrease AD
Consumer expectations about future profitability
Government spending
Interest rates
The value of the domestic currency relative to the foreign currency

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