Macroeconomic Forces on Aggregate Demand and Supply Quiz

Changes in consumer expectations can influence spending patterns, affecting aggregate demand.

Increased government spending usually boosts overall demand in the economy.

A reduction in the money supply usually leads to lower spending and investment, resulting in a decrease in aggregate demand.

Government spending is a key component of aggregate demand, representing the expenditures made by the government.

Potential output in the long run is primarily determined by aggregate supply.

Central banks use open market operations to buy or sell securities, affecting money supply and, consequently, aggregate demand.

An increase in wages often raises production costs, causing a leftward shift in the short-run aggregate supply curve.

Aggregate demand is calculated by summing consumption, investment, government spending, and net exports (exports minus imports).

Higher interest rates typically discourage spending, leading to a decrease in aggregate demand, while they may encourage savings and increase aggregate supply.

In the short run, an increase in the price level often leads to higher production, causing a rightward shift in the aggregate supply curve.

Unemployment insurance provides automatic support during economic downturns, acting as a stabilizer in fiscal policy.

A leftward shift in the aggregate demand curve in the AS-AD model signals a decrease in overall output.