Illustrate the aggregate demand curve and the factors that shift it

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 23, Problem 1LO

To determine

Illustrate the aggregate demand curve and the factors that shift it

Expert Solution & Answer

Explanation of Solution

In macroeconomics, the emphasis is on the demand and supply of all products and services produced by an economy. Appropriately, the demand for every single individual goods and service is likewise consolidated and referred to aggregate demand.

The total/aggregate demand curve depicts the aggregate amount of all products (and services) demanded by the economy at various price levels. A case of a total demand curve is given in Figure 1 as follows:

EBK THE ECONOMICS OF MONEY, BANKING AND, Chapter 23, Problem 1LO , additional homework tip 1

The vertical axis indicates the price levels of all final goods and services. The total price level is estimated by either the GDP deflator or the CPI. The horizontal axis speaks about the genuine amount of all products and services acquired as estimated by the level of real GDP. Notice that the total demand curve, AD, similar to the demand curves for singular merchandise is downward sloping, inferring that there is an inverse connection between the price level and the quantity demanded of real GDP.

Shifts of Aggregate Demand Curve

Changes in aggregate demand are indicated by shifts in the aggregate demand curve. A representation of the two ways by which the total demand curve can move is given in Figure 2 as follows:

EBK THE ECONOMICS OF MONEY, BANKING AND, Chapter 23, Problem 1LO , additional homework tip 2

A shift to the right of the aggregate demand curve from AD 1 to AD 2, implies that at a similar price level the quantity demanded of real GDP has expanded. A shift to the left of the aggregate demand curve, from AD 1 to AD 3, implies that at a similar price level the quantity demanded of real GDP has diminished.

Changes in aggregate demand are not caused by changes in the price level. Rather, they are caused by changes in the demand for any of the parts of real GDP. Changes in the demand for consumption of products and services, changes in investment spending, changes in the government demand for merchandise and services, or changes in the demand for net exports.

Think about a few cases. Assume shop Keepers were to diminish their spending on all merchandise and services, maybe because of a recession. At that point, the total demand curve would move to the left.

Assume loan fees as interest rates were to fall with the goal that financial specialist expand their investment spending; the total demand curve would move to the right.

If government somehow managed to slice spending to lessen a budget deficit, the total demand curve would move to the left.

In the event that the livelihoods of foreigners were to rise, empowering them to request more domestic-made merchandise, net exports would increment, and total demand would move to the right.

These are only a couple of the numerous conceivable ways the total aggregate demand may move. None of these clarifications, in any case, has anything to do with changes in the price level.

Economics Concept Introduction

Introduction:

The total/aggregate demand curve depicts the aggregate amount of all products (and services) demanded by the economy at various price levels. Changes in aggregate demand are not caused by changes in the price level. Rather, they are caused by changes in the demand for any of the parts of real GDP. Changes in the demand for consumption of products and services, Changes in investment spending, Changes in the government demand for merchandise and services, or changes in the demand for net exports.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Should Maureen question the family about the history of the home? Can Maureen access public records for proof of repairs?

3. Distinguish between a direct democracy and a representative democracy. Use appropriate examples to support your answers. [4] 4. Explain the distinction between outputs and outcomes in social service delivery [2] 5. A R1000 tax payable by all adults could be viewed as both a proportional tax and a regressive tax. Do you agree? Explain. [4] 6. Briefly explain the displacement effect in Peacock and Wiseman's model of government expenditure growth and provide a relevant example of it in the South African context. [5] 7. Explain how unbalanced productivity growth may affect government expenditure and briefly comment on its relevance to South Africa. [5] 8. South Africa has recently proposed an increase in its value-added tax rate to 15%, sparking much controversy. Why is it argued that value-added tax is inequitable and what can be done to correct the inequity? [5] 9. Briefly explain the difference between access to education and the quality of education, and why we should care about the…

20. Factors 01 pro B. the technological innovations available to companies. A. the laws that regulate manufacturers. C. the resources used to create output D. the waste left over after goods are produced. 21. Table 1.1 shows the tradeoff between different combinations of missile production and home construction, ceteris paribus. Complete the table by calculating the required opportunity costs for both missiles and houses. Then answer the indicated question(s). Combination Number of houses Opportunity cost of houses in Number of missiles terms of missiles J 0 4 K 10,000 3 L 17,000 2 1 M 21,000 0 N 23,000 Opportunity cost of missiles in terms of houses Tutorials-Principles of Economics m health care

Answer 2