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Use the following graph to answer the next question. Which of the following factors will shift AD1 to AD2?   A decrease in consumer wealth   An increase in expected returns on investment   An increase in real interest rates   An increase in productivity

Use the following graph to answer the next question. Which of the following factors will shift AD1 to AD2?   A decrease in consumer wealth   An increase in expected returns on investment   An increase in real interest rates   An increase in productivity

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Use the following graph to answer the next question.

Which of the following factors will shift AD1 to AD2?

 

A decrease in consumer wealth
 

An increase in expected returns on investment
 

An increase in real interest rates
 

An increase in productivity
The image shows a set of three downward sloping curves on a graph, which are labeled as AD₁, AD₂, and AD₃. This graph is an illustration of Aggregate Demand (AD) in an economy. ### Graph Explanation: - **Axes**: - The vertical axis is labeled "Price Level." - The horizontal axis is labeled "Real Domestic Product, GDP." - **Curves**: - Each curve represents a different level of aggregate demand (AD) in the economy. - The curves are downward sloping from left to right, indicating that as the price level decreases, the real GDP increases, and vice versa. - **AD₁, AD₂, AD₃**: - These labels represent different aggregate demand scenarios. Usually, AD₁ is the baseline or initial demand curve, AD₂ shows an increase in aggregate demand, and AD₃ shows a further increase. This graph is commonly used to explain how changes in aggregate demand can impact the overall economy, influencing both the price level and real GDP. It illustrates the inverse relationship between price levels and GDP in the short-run.
Transcribed Image Text:The image shows a set of three downward sloping curves on a graph, which are labeled as AD₁, AD₂, and AD₃. This graph is an illustration of Aggregate Demand (AD) in an economy. ### Graph Explanation: - **Axes**: - The vertical axis is labeled "Price Level." - The horizontal axis is labeled "Real Domestic Product, GDP." - **Curves**: - Each curve represents a different level of aggregate demand (AD) in the economy. - The curves are downward sloping from left to right, indicating that as the price level decreases, the real GDP increases, and vice versa. - **AD₁, AD₂, AD₃**: - These labels represent different aggregate demand scenarios. Usually, AD₁ is the baseline or initial demand curve, AD₂ shows an increase in aggregate demand, and AD₃ shows a further increase. This graph is commonly used to explain how changes in aggregate demand can impact the overall economy, influencing both the price level and real GDP. It illustrates the inverse relationship between price levels and GDP in the short-run.
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