Factors Influencing Aggregate Demand and Aggregate Supply Quiz

Price level does not determine aggregate demand as it is a component of it.

Increased taxes reduce disposable income, leading to lower spending and hence, decreased aggregate demand.

Government purchases contribute to total spending in an economy, hence part of aggregate demand.

Lower exchange rate makes exports cheaper for foreign buyers, boosting export demand.

Disposable income directly affects consumer spending behavior, a key component of aggregate demand.

Higher interest rates increase the cost of borrowing, discouraging investment and hence reducing aggregate demand.

Price level changes do not shift aggregate supply; they cause movements along the supply curve.

More money in circulation stimulates spending, thereby boosting aggregate demand.

High consumer confidence encourages spending, boosting aggregate demand.

Price level changes cause movements along the aggregate supply curve rather than shifts.

Long-run AS curve is determined by factors like technology, not temporary changes.

Government spending directly contributes to total spending, hence increases aggregate demand.

Long-run AS is influenced by factors like resource prices, technology, and labor.

Short-run AS is particularly sensitive to resource price changes.

Higher wages increase production costs, reducing the overall supply available in the economy.

Interest rates significantly affect the cost of borrowing, influencing investment decisions.

More regulation increases production costs, leading to a decrease in aggregate supply.

Inflation erodes purchasing power, leading to reduced spending and lower aggregate demand.

Higher prices often lead to increased production, hence expanding short-run aggregate supply.

Reduced money supply leads to less liquidity, hampering spending and thus decreasing aggregate demand.

Higher prices reduce purchasing power, leading to decreased spending and hence aggregate demand.

Higher confidence leads to increased spending, contributing to higher aggregate demand.