ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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There is a downward movement along the AD curve
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The AD curve shifts leftward
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The AD curve shifts rightward
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There is an upward movement along the AD curve
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Detailed explanation-1: -Along the AD curve, real GDP increases and the price level decreases. In other words, AD slopes down. Changes in the price level will cause a movement along the AD curve.
Detailed explanation-2: -As the domestic price level rises, foreign‐made goods become relatively cheaper so that the demand for imports increases. However, the rise in the domestic price level also means that domestic‐made goods are relatively more expensive to foreign buyers so that the demand for exports decreases.
Detailed explanation-3: -It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports. The aggregate demand curve shifts when the quantity of real GDP demanded at each price level changes.
Detailed explanation-4: -All other things unchanged, a lower price level in an economy reduces the prices of its goods and services relative to foreign-produced goods and services. A lower price level makes that economy’s goods more attractive to foreign buyers, increasing exports.