ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A rise in real GDP and the price level
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A fall in GDP and the price level
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A fall in real GDP but a rise in the price level
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A rise in real GDP but a fall in the price level
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Detailed explanation-1: -So, in response to a decrease in the price level, real GDP will increase. More formally, this means that when households’ assets are worth more in terms of their purchasing power, they are more likely to purchase more goods and services.
Detailed explanation-2: -only if the quantity of final goods and services produced rises. The real GDP only increases if the quantity of goods and services produced by the economy rises. Indeed the main reason for using the real GDP is that it removes any effect that inflation may have on the GDP of a country.
Detailed explanation-3: -If aggregate demand decreases to AD 3, in the short run, both real GDP and the price level fall. A line drawn through points A, B, and C traces out the short-run aggregate supply curve SRAS.
Detailed explanation-4: -If GDP falls from one quarter to the next then growth is negative. This often brings with it falling incomes, lower consumption and job cuts. The economy is in recession when it has two consecutive quarters (i.e. six months) of negative growth.