Aggregate Demand and Aggregate Supply in Macroeconomics Quiz

Government spending contributes to Aggregate Demand by stimulating economic activity.

Increased consumer confidence leads to higher spending, boosting Aggregate Demand.

In the short-run, Aggregate Supply is influenced by nominal wages and prices.

Higher interest rates deter investment, inversely impacting Aggregate Demand.

Increased government spending directly raises Aggregate Demand.

Changes in prices influence consumer spending behavior, known as the wealth effect.

Short-run Aggregate Supply considers immediate production costs, while long-run focuses on maximum output potential.

Higher taxes reduce disposable income, leading to decreased spending and Aggregate Demand.

Initial spending stimulates further economic activity through a chain reaction of increased consumption and investment.

Intersection at potential output indicates an economy operating at full employment.

Output gap reflects the variance between current and maximum possible production levels.

Increased money supply lowers interest rates, encouraging borrowing and spending, thus boosting Aggregate Demand.

Natural disasters disrupt production, affecting Aggregate Supply.

Shortfall in Aggregate Demand leads to deflationary pressure.

Long-run Aggregate Supply is concerned with the economy's potential output.

GDP deflator measures the level of prices in the economy relative to the base year.

In the long run, Aggregate Demand changes do not affect prices according to classical economics.

Changes in the money supply impact consumer spending and investment, shifting Aggregate Demand.

The Phillips curve illustrates the trade-off between inflation and unemployment rates.

Short-run Phillips curve describes the trade-off between inflation and unemployment, while the long-run curve emphasizes potential output.

Natural rate of unemployment represents the equilibrium level of unemployment in a healthy economy.

Classical economists advocate for minimal government intervention, relying on market mechanisms for self-correction.

Liquidity trap occurs when interest rates are so low that injecting more money into the economy does not stimulate borrowing or spending.

Currency depreciation makes exports cheaper and imports expensive, boosting net exports and Aggregate Demand.

Fiscal multiplier measures the effect of government spending changes on national income and output.