1. Discuss the difference between an increase in the aggregate demand curve and

Question

1. Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include discussion of how the price level relates to each event.

2. What are the major factors that determine investment, and what impact does each have on aggregate demand?

3. Describe the difference between a microeconomic demand curve and an aggregate demand curve.

4. The aggregate demand curve portrays the relationship between price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

5. What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

6. Explain how changes in the stock of capital affect aggregate supply.

7. What is the natural level of output?

Explanation / Answer

1.

The aggregate demand curve is a graphical portrayal of aggregate demand. It demonstrates the connection between RGDP demanded and price level. An expansion in the aggregate demand curve includes both price level and amount of RGDP.

All in all, a change in the price level, with every other determinant of aggregate demand unaltered, causes a movement along the aggregate demand curve. A movement along a aggregate demand curve is an adjustment in the total amount of goods and services demanded. An expansion in RGDP causes the price level reductions.

2.

In the long haul, inflation rates can have an effect on investment. High and variable inflation has a tendency to make more vulnerability and disarray, with vulnerabilities over the cost of investment. On the off chance that inflation is high and unstable, firms will be unverifiable at the last cost of the investment, they may likewise fear high inflation could prompt monetary vulnerability and future downturn. Nations with a drawn out time of low and stable swelling have frequently experienced higher rates of venture. On the off chance that low inflation is caused by a fall sought after and monetary development – then this low inflation won't, of itself, be adequate to support speculation. The perfect is low inflationary and feasible development.

Productivity of capital: Long haul changes in innovation can impact the allure of investment. In the late nineteenth century, new innovation, for example, Bessemer steel and enhanced steam motors implied firms had a solid motivation to put resources into this new innovation since it was considerably more proficient than past innovation. In the event that there is a lull in the rate of mechanical advance, firms will reduce speculation as there are bring down profits for the venture.

Expectations: An adjustment in the capital stock changes future creation limit. In this way, plans to change the capital stock depend urgently on expectations. A firm thinks about likely future deals; an understudy measures prospects in various occupations and their required instructive and preparing levels. As expectations change in a way that builds the normal come back from investment, the investment demand curve movements to one side. Likewise, expectations for diminished benefit move the investment demand curve to one side.

?3. The contrast between microeconomic demand and aggregate demand outlines the crucial distinction amongst microeconomics and macroeconomics. Microeconomics is worried about the free market activity of particular goods and services. Macroeconomics is worried about a country's aggregate free market activity all goods and services. Microeconomic demand is the "demand" side of the condition in microeconomics, while aggregate demand is the same in macroeconomics.

4.

There is a inverse relationship between the price level and real Gross domestic product. An expansion in the price level causes RGDP requested to fall. On the off chance that the decrease in the price level happens, RGDP demanded increases.

There are three reasons existing in this relationship:

The interest rate effect – An adjustment in investment: An interest rates fall, family units and firms will acquire more cash and purchase more merchandise and enterprises – therefore, the amount of RGDP requested will increment.

The open economy impact: A lower price level market in a nation trades more affordable and imported products more costly. Along these lines, that nation's shoppers will purchase more domestic goods and foreign consumers will purchase more products in that nation, this will expand net exports and increment the measure of RGDP bought in the nation.

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