Aggregate Demand Curve ( AD ): It shows how price and the quantity demanded are related to each other. The curve is negatively slopped which means that when prices rise the quantity demanded falls. Aggregate Supply Curve ( AS ): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time. Short Run Aggregate Supply ( SRAS ): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in the short run due to formal or informal contracts. At high aggregate prices, there is a higher profit leading to a high level of output. Money supply ( MS ): It is the quantity of money present in the economy. It is controlled by the central bank of the country. Money Demand ( MD ): It is the quantity of money demanded in the economy. It depends on the interest rate and the income of the person. Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in the given interval of time. Fiscal policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa. They are generally of two types: Expansionary Fiscal Policy: when the government increase expenditures or it reduces taxes, in both conditions, the consumption spending in the economy increases which leads to an increase in the aggregate demand level. Contractionary Fiscal Policy: when the government decrease expenditures or it raises taxes, in both conditions, the consumption spending in the economy decreases which leads to a decrease in the aggregate demand level.

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Chapter 18, Problem 8P

To determine

Concept Introduction:

Aggregate Demand Curve ( AD ): It shows how price and the quantity demanded are related to each other. The curve is negatively slopped which means that when prices rise the quantity demanded falls.

Aggregate Supply Curve ( AS ): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time.

Short Run Aggregate Supply ( SRAS ): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in the short run due to formal or informal contracts. At high aggregate prices, there is a higher profit leading to a high level of output.

Money supply (MS ): It is the quantity of money present in the economy. It is controlled by the central bank of the country.

Money Demand ( MD ): It is the quantity of money demanded in the economy. It depends on the interest rate and the income of the person.

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in the given interval of time.

Fiscal policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa. They are generally of two types:

Expansionary Fiscal Policy: when the government increase expenditures or it reduces taxes, in both conditions, the consumption spending in the economy increases which leads to an increase in the aggregate demand level.

Contractionary Fiscal Policy: when the government decrease expenditures or it raises taxes, in both conditions, the consumption spending in the economy decreases which leads to a decrease in the aggregate demand level.

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