State how shifts in the aggregate demand curve can explain the movement of real GDP around potential GDP
What will be an ideal response?
When the aggregate demand curve and the aggregate supply curve intersect at the level of potential GDP, then real GDP is equal to potential GDP. When something shifts the aggregate demand curve rightward, then the aggregate demand curve and the aggregate supply curve will intersect at a level of real GDP that is above potential GDP. The economy will be in an expansion. When something shifts the aggregate demand curve leftward, then the aggregate demand curve and the aggregate supply curve will intersect at a level of real GDP that is below potential GDP. The economy will be in a recession.
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Due to a recession in the US, the average rate of return on investments is likely to fall causing the US dollar to
a. Appreciate b. Depreciate c. Not change in value d. None of the above
In a market economy, the main market signal to competitive suppliers is
a. the number of consumers b. consumers' income c. the rate of inflation d. the price of the product e. the unemployment rate