ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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With higher prices people consume less
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With higher prices exports decrease
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Either A or B
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None of the above
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Detailed explanation-1: -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-2: -Such a reduction in net exports reduces aggregate demand. An increase in foreign prices relative to U.S. prices has the opposite effect. The trade policies of various countries can also affect net exports.
Detailed explanation-3: -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-4: -AD components can change because of different personal choices-like those resulting from consumer or business confidence-or from policy choices like changes in government spending and taxes. If the AD curve shifts to the right, then the equilibrium quantity of output and the price level will rise.
Detailed explanation-5: -An increase in exports means the rightward shift in the aggregate demand curve. It means aggregate demand increases with the same aggregate supply curve such that both price level and aggregate output rise into an economy.