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
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 |
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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