The Relationship Between the Aggregate Demand Curve and the Aggregate

question 278

Multiple Choice

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that

• A) a decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP.
• B) a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.
• C) an increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.
• D) an increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP.

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Definitions:

Returns To Scale

The rate at which output changes if the scale of all inputs is changed by the same proportion in the production process.

Input

Resources used in the production process to generate goods or services, including labor, raw materials, and capital.

Output

The total amount of goods or services produced by a company, sector, or economy within a specific time period.

Isoquants

Curves that represent all the combinations of two inputs that produce the same level of output, used in the analysis of production technology.