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Aggregate Demand

Problems

Shifts in the Aggregate Demand Curve

Test

Problem : What are two uses for the aggregate demand curve?

The aggregate demand curve tells how the price level and output and income are related. It shows the general effects of changes in many economic variables on the relationship between price level and output and income.

Problem : What is the effect of a shift in the aggregate demand curve to the left?

When the aggregate demand curve shifts to the left, the total quantity of goods and services demanded in an economy decreases as the price level increases.

Problem : What is the effect of a shift in the aggregate demand curve to the right?

When the aggregate demand curve shifts to the right, the total quantity of goods and services demanded in an economy increases as the price level decreases.

Problem : Give three examples of events that will shift the aggregate demand curve to the left?

Examples of events that will shift the aggregate demand curve to the left include exogenous decreases in consumption, investment, and net exports, an increase in the savings rate, a decrease in the marginal propensity to consume, an increase in the interest rate, and an increase in the real exchange rate.

Problem : Give three examples of events that will shift the aggregate demand curve to the right?

Examples of events that will shift the aggregate demand curve to the right include exogenous increases in consumption, investment, and net exports, a decrease in the savings rate, an increase in the marginal propensity to consume, a decrease in the interest rate, and a decrease in the real exchange rate.

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