Explain how the aggregate demand curve is related to the C + I + G + X curve
What will be an ideal response?
The C + I + G + X curve determines equilibrium real Gross Domestic Product (GDP) for a given price level. If the price level rises, people reduce consumption at every level of Gross Domestic Product (GDP) because their money balances are less valuable, investment spending falls because interest rates increase, and net exports fall because domestic goods are relatively more expensive. Hence, the C + I + G + X curve shifts down, generating a lower real Gross Domestic Product (GDP). We have two price levels and two equilibrium levels of real Gross Domestic Product (GDP) and can derive the downward sloping aggregate demand curve.
You might also like to view...
Two months ago, the Maryville Shirt company sold 2000 shirts at $30 per shirt. Last month the company raised its price to $35 per shirt and sold 3000 shirts. Evidently the company experienced a(n):
A. Decrease in demand B. Increase in demand C. Decrease in supply D. Increase in supply
If the government does not provide it, the quantity of a nonexcludable good that private firms will choose to produce is
A. zero. B. more than the optimal amount. C. the optimal amount. D. optimal only if property rights are assigned. E. optimal only if the industry is competitive.