1. The AD curve describes a negative relationship between Y and P. This is becau

ID: 1203916 • Letter: 1

Question

1. The AD curve describes a negative relationship between Y and P. This is because

(a) a higher P increases NX

(b) a higher P diminishes I

(d) a higher P diminishes C

2. Which of the following is correct?

(a) Investment I is the most volatile component of AD

(b) For the competitiveness of domestic products in international markets, it is good to have a weak USD

(d) Government spending is controlled by the Federal Reserve

(e) They are all correct except d.

3. Net exports tend to decrease if

(a) foreign inflation increases

(b) foreign income increases

(d) foreign goods become relatively cheaper than domestic goods.

1. As price increase, demand will decline and thus AD will decline due to fall in consumption. Option d.

2. Option e. It is controlled by government.

3. Option D. Exports will decline due to rise in price level and imports will increase.

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