ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -Price levels are leading indicators in the economy; rising prices indicate higher demand leading to inflation while declining prices indicate lower demand or deflation.
Detailed explanation-2: -Relationship Between Prices and Consumer Demand In general, when the price of a good or service changes, consumer demand for that good or service is also impacted. This is the basis for the law of demand, which states that any increase in prices tends to cause the demand for a good or service to decline.
Detailed explanation-3: -The money you have is now worth more and you feel wealthier. So, in response to a decrease in the price level, real GDP will increase. More formally, this means that when households’ assets are worth more in terms of their purchasing power, they are more likely to purchase more goods and services.
Detailed explanation-4: -The amount of output supplied will be greater than aggregate demand. Prices will begin to fall to eliminate the surplus output. As prices fall, the amount of aggregate demand increases and the economy returns to equilibrium.