ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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decreasing aggregate output, lowering unemployment, and lowering the inflation.
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increasing aggregate output, raising unemployment, and raising the inflation.
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increasing aggregate output, lowering unemployment, and raising the inflation.
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decreasing aggregate output, raising unemployment, and lowering the inflation.
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Detailed explanation-1: -In the short run, rising prices (ceteris paribus) or higher demand causes an increase in aggregate supply. Producers do this by increasing the utilization of existing resources to meet a higher level of aggregate demand.
Detailed explanation-2: -Cost-push inflation A fall in aggregate supply is often caused by an increase in the cost of production. If aggregate supply falls but aggregate demand remains unchanged, there is upward pressure on prices and inflation – that is, inflation is ‘pushed’ higher.
Detailed explanation-3: -if inflation increases (decreases), central bank will increase (decrease) interest rates. this will dampen (increase) aggregate demand.
Detailed explanation-4: -A reduction in aggregate demand causes a leftward shift in the aggregate demand curve. This reduction lowers the GDP and price levels. This leads to economic contractions, making demand fall below the economy’s potential GDP, thereby causing a recession. Real GDP then falls, and so does the aggregate price level.