ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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reduce wages when a decline in aggregate demand occurs.
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reduce prices when a decline in aggregate demand occurs.
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expand production capacity when an increase in aggregate demand occurs.
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provide wage increases when labor productivity rises.
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Detailed explanation-1: -The fear of unwanted price wars may explain why many firms are reluctant to: reduce prices when a decline in aggregate demand occurs. A rightward shift of the AD curve in the very flat part of the short-run AS curve will: increase real output by more than the price level.
Detailed explanation-2: -The aggregate demand curve represents the total of consumption, investment, government purchases, and net exports at each price level in any period. It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.
Detailed explanation-3: -The aggregate demand (AD) curve shows that as the price level drops, purchases of real domestic output increase. The AD curve slopes downward for three reasons. The first is the interest-rate effect. We assume the supply of money to be fixed.
Detailed explanation-4: -The correct answer to the given question is option c. An increase in income taxes. An increase in income taxes leads to decrease in disposable income for consumers thereby dampening the aggregate demand for goods and services.