ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Aggregate supply and aggregate demand both increase.
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Aggregate supply and aggregate demand both decrease.
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Aggregate supply decreases and aggregate demand increases.
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Aggregate supply increases and aggregate demand decreases.
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Detailed explanation-1: -Ans is D. Decrease in aggregate supply and an increase in quantity demand will both lead to an increase in prices.
Detailed explanation-2: -In which of the following sets of circumstances can we confidently expect inflation? Aggregate supply decreases and aggregate demand increases.
Detailed explanation-3: -But: higher inflation reduces competitiveness of exports. Result: Higher inflation leads to less aggregate demand.
Detailed explanation-4: -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-5: -Inflation Expectations If consumers expect inflation to go up in the future, they will tend to buy now causing aggregate demand to increase or shift to the right.