AD, AS, Circular Flow

Question 1

What is aggregate demand?

Answer 1

Aggregate demand is the total demand for all goods and services in an economy at a given overall price level and in a given time period.

Question 2

What are the components of aggregate demand?

Answer 2

The components of aggregate demand are consumption, investment, government spending, and net exports.

Question 3

True or False: Aggregate demand increases when consumer confidence is high.

Answer 3

True

Question 4

Fill in the blank: The formula for aggregate demand is AD = C + I + G + (X - M), where AD is aggregate demand, C is ______, I is investment, G is government spending, X is exports, and M is imports.

Answer 4

consumption

Question 5

What does the aggregate supply curve represent?

Answer 5

The aggregate supply curve represents the total quantity of goods and services that producers are willing and able to supply at different price levels.

Question 6

What is the long-run aggregate supply (LRAS)?

Answer 6

The long-run aggregate supply (LRAS) is the total output of goods and services that an economy can produce when using all resources efficiently.

Question 7

True or False: The short-run aggregate supply (SRAS) curve is upward sloping.

Answer 7

True

Question 8

What factors can shift the aggregate supply curve to the right?

Answer 8

Factors that can shift the aggregate supply curve to the right include improvements in technology, increases in resources, and lower production costs.

Question 9

What is the circular flow of income?

Answer 9

The circular flow of income is an economic model that describes the movement of money, goods, and services between households and businesses in an economy.

Question 10

In the circular flow model, what do households provide to firms?

Answer 10

Households provide factors of production, such as labor, land, and capital, to firms.

Question 11

What do firms provide to households in the circular flow model?

Answer 11

Firms provide goods and services to households.

Question 12

True or False: In the circular flow of income, the government plays no role.

Answer 12

False

Question 13

What role does the government play in the circular flow of income?

Answer 13

The government collects taxes and provides public goods and services, influencing both aggregate demand and aggregate supply.

Question 14

What is the impact of an increase in taxes on aggregate demand?

Answer 14

An increase in taxes typically decreases aggregate demand as households have less disposable income to spend.

Question 15

Fill in the blank: The relationship between aggregate demand and aggregate supply determines the ______ in an economy.

Answer 15

equilibrium price level

Question 16

What happens when aggregate demand exceeds aggregate supply?

Answer 16

When aggregate demand exceeds aggregate supply, it can lead to inflation.

Question 17

What is a recession in terms of aggregate demand and supply?

Answer 17

A recession occurs when aggregate demand is insufficient to purchase the total output produced by the economy, leading to a decrease in economic activity.

Question 18

Multiple Choice: Which of the following is NOT a component of aggregate demand? A) Consumption B) Savings C) Government Spending D) Net Exports

Answer 18

B) Savings

Question 19

What is the relationship between aggregate supply and the price level in the short run?

Answer 19

In the short run, there is a positive relationship between aggregate supply and the price level.

Question 20

True or False: A decrease in consumer spending will shift the aggregate demand curve to the left.

Answer 20

True

Question 21

What is the effect of an increase in interest rates on aggregate demand?

Answer 21

An increase in interest rates typically reduces aggregate demand as borrowing costs rise and consumption and investment decrease.

Question 22

Fill in the blank: In the circular flow of income, ______ are the primary providers of consumption spending.

Answer 22

households

Question 23

What is the significance of the equilibrium point in the aggregate demand and supply model?

Answer 23

The equilibrium point is significant as it represents the price level and output where aggregate demand equals aggregate supply.

Question 24

What effect does government spending have on aggregate demand?

Answer 24

Government spending directly increases aggregate demand.