Chapter 13.3, Problem 3R

To determine

To discuss: The way in which a bad economic forecast can affect aggregate demand.

Explanation of Solution

There can be different prices for all products; hence, aggregate demand cannot be linked to all the prices of an individual. The aggregate demand also cannot be associated with the price level as average of all prices is measured by the price index.

The economic forecasts like GDP, inflation affect the aggregate demand. If better economic conditions are forecasted, the aggregate demand will rise as consumers will spend more and save less. Hence, if bad economic forecasts are made it can affect aggregate demand negatively and the aggregate demand will fall.

Economics Concept Introduction

Introduction:

Aggregate demand- The aggregate demand is the total of all planned expenditures that are made in an economy. As the prices of products vary from one another, this cannot be related to individual prices rather it is related to the price level.