If aggregate demand is constant in an economy and aggregate supply decreases in the short run, which of the following statements is correct for the new equilibrium point? a) price goes up national income goes up B) price goes down national income goes down NS) price goes up national income goes down D) price goes down and national income goes up TO) price goes up national income does not change
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: If aggregate demand is constant in an economy and
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The aggregate demand and aggregate supply model is used to determine the equilibrium price level and income level in the economy in Keynesian economics. The aggregate demand curve in Keynesian economics shows the combinations of income and price level at which the good and money market of the economy clears and it is a downward-sloping curve.
In Keynesian economics, the aggregate supply curve is an upward sloping curve and it shows the quantity of real GDP supplied by the firms at every possible price level. The equilibrium price level and income level in the Keynesian model are determined at a point where the aggregate demand curve intersects the aggregate supply curve.
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