ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If aggregate demand increases to AD 2, in the short run, both real GDP and the price level rise. If aggregate demand decreases to AD 3, in the short run, both real GDP and the price level fall.

Detailed explanation-2: -GDP represents the total amount of goods and services produced in an economy while aggregate demand is the demand or desire for those goods. Aggregate demand and GDP commonly increase or decrease together. Aggregate demand equals GDP only in the long run after adjusting for the price level.

Detailed explanation-3: -In the most general sense (and assuming ceteris paribus conditions), an increase in aggregate demand corresponds with an increase in the price level; conversely, a decrease in aggregate demand corresponds with a lower price level.

Detailed explanation-4: -If the aggregate supply-also referred to as the short-run aggregate supply or SRAS-curve shifts to the right, then a greater quantity of real GDP is produced at every price level. If the aggregate supply curve shifts to the left, then a lower quantity of real GDP is produced at every price level.

Detailed explanation-5: -The Short-Run Aggregate Supply Curve (SRAS) The SRAS curve shows that as the price level increases and you move along the SRAS, the amount of real GDP that will be produced in an economy increases. An increase in the SRAS is shown as a shift to the right.