4. Determinants of aggregate demand The following graph shows a decrease in aggr

Question

4. Determinants of aggregate demand The following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1 to AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 blion, where previously it was $300 billion. previously it was $300bllion 170 160 150T 140 -t-+ 130 120 110 AD1 100 D2 90 0 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars)

Explanation / Answer

Wealth decreases

Taxes increases

expected Return on investment falls

Income in other countries falls ( this will result in fall in domestic countries exprots or fall in other countries imports)

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