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aq13Feb2 - final purchases at fixed total income One wealth...

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Tuesday 18 February Which of the following are TRUE regarding Aggregate Demand [AD] and Aggregate Expenditure [AE]? a. Both are C + I + G + (X – M); TRUE b. For AD, output prices vary; for AE they are fixed. TRUE c. For AE, output prices vary; for AD they are fixed. FALSE d. AE shows how planned purchases in aggregate vary with real GDP, whereas AD shows how desired purchases in aggregate vary with the output price level. TRUE e. AD slopes down because input prices [money wages] are presumed fixed in the short run FALSE ; there are three reasons it slopes down, all to do with why lower US output prices increase desired
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Unformatted text preview: final purchases at fixed total income. One wealth effect – lower output prices make money assets worth more real goods and services; two substitution effects: lower output prices imply lower real interest rate [to induce acceptance of the now larger real money supply], leading to greater demand for interest-sensitive purchases [investment, consumer durables]; and lower US output prices increase foreign purchases [X] and reduce imports [M]. f. AE slopes up because when real GDP rises, so does disposable income, so planned consumption increases. TRUE...
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