5. The aggregate demand curve is downward-sloping because a. higher prices make
ID: 1131014 • Letter: 5
Question
5. The aggregate demand curve is downward-sloping because a. higher prices make business more profitable and thus output expands b. lower prices makes business conditions more attractive so that quantity expands c. lower prices make some people feel wealthier and they therefore demand more d. lower prices cause higher interest rates that increase the quantity demanded 6. The aggregate supply curve is positively sloped because: a. input prices eventually catch up with higher output prices b. new firms enter markets when the economy expands past its potential output c. firms expand their outputs as higher output prices make production more profitable at stable input prices d. higher prices cause people consume more of goods 7. The 45 degree line show various combinations of total spending and income equality contains only a consumption component A c represents consumption and saving D all of the above 8. A payroll tax cut shifts the AD schedule: a. rightward b. leftward c. not at all none of the aboveExplanation / Answer
Answer 5 - Aggregate demand curve slopes downward because lower prices makes some people feel wealthier and they therefore demand more quantity of goods. This is known as ''wealth effect''. This effect increase the real balances in the economy thus consumers start purchasing more.
Option C is the correct answer.
Answer 6 - The aggregate supply curve slopes positively, firms expands their output on higher output price makes production more profitable at stable input prices. Since input prices are stable thus cost of production is approx constant but rising prices increase revenue resulted more profit in the business.
Option C is the correct answer.
Answer 7 - The 45* degree line show various combination of total spending and income equality. Every point on the 45* line shows AE=Y.
Option A is the correct answer.
Answer 8 - A payroll tax cut shifts the AD curve rightward because labor would get more income. Consumption would increase and result to shift in AD curve to the right.
Option A is the correct answer.
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