Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply?
(A) Both aggregate demand and aggregate supply will decrease, leading to lower real GDP.
(B) Aggregate demand will decrease, lowering both real GDP and the price level.
(C) Aggregate supply will decrease, raising the price level and lowering real GDP.
(D) No change on aggregate demand and aggregate supply.
Ans: (B) Aggregate demand will decrease, lowering both real GDP and the price level.
You might also like to view...
"It is clear from the theory of monopolistic competition that product development is not pushed to its efficient level." This statement is
A) false because there is so much product differentiation in monopolistic competition. B) true because there is little incentive to innovate in monopolistic competition. C) false because there are so many wasteful innovations in monopolistic competition that are merely cosmetic. D) true because price exceeds marginal revenue in monopolistic competition.
In the context of Ireland's Balance of Payments, what does the term "patent cliff" refer to?
(a) The large number of FDI companies in Ireland. (b) A drop in exports attributed to the pharmaceutical sector. (c) Plummeting unemployment levels. (d) A depreciating currency.