"The aggregate demand curve slopes down for the same reason that the individual demand curve for a good slopes down." Do you agree or disagree with this statement? Why?
What will be an ideal response?
Disagree. The aggregate demand curve does not use price, but uses the price level, and quantity demanded is not for a specific good, but for the total expenditures on real goods and services. As the relative price of a good falls, individuals will substitute toward that good. There are economy-wide reasons that cause the aggregate demand curve to slope downwards. For example, the lower aggregate price level will cause a reduction in the interest rate and an increase in the overall demand for goods. In additon, the lower price level will cause real money balances to increase, and so increased planned spending.
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Suppose the market clearing price for apples rises from $2.00 to $3.00 per pound, and the overall market clearing output increases from 1 million to 2 million pounds. How can we explain the increase in price and increase in market output?
A) Supply increased and demand remained unchanged. B) Supply decreased and demand decreased. C) Demand increased and supply remained unchanged. D) None of the above.
If, between 2006 and 2016, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy?
A) 3% B) 7% C) 20% D) 100%