ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Total Input
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Total Output
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Price Level
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Both A&B
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Detailed explanation-1: -The vertical axis represents the price level of all final goods and services. The aggregate price level is measured by either the GDP deflator or the CPI. The horizontal axis represents the real quantity of all goods and services purchased as measured by the level of real GDP.
Detailed explanation-2: -Why? The price level shown on the vertical axis represents prices for final goods or outputs bought in the economy-like the GDP deflator-not the price level for intermediate goods and services that are inputs to production.
Detailed explanation-3: -In contrast, the vertical axis of an aggregate supply and aggregate demand diagram expresses the level of a price index like the Consumer Price Index or the GDP deflator-combining a wide array of prices from across the economy.
Detailed explanation-4: -Aggregate Demand Curve Like most typical demand curves, it slopes downward from left to right with goods and services on the horizontal X-axis and the overall price level of the basket of goods and services on the vertical Y-axis.
Detailed explanation-5: -In quantitative terms, the aggregate demand of a country is the same as the country’s GDP. Therefore, the graphic representation of aggregate demand takes into account the price level (y-axis) and real GDP (x-axis).