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Shifts in the aggregate demand curve can cause fluctuations in:

a. neither the level of output nor the price level.

b. the level of output, but not the price level.

c. the price level, but not the level of output.

c. the level of output and the price level.

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Sonia Dhawan
Sonia DhawanLv10
8 Jan 2021

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Related questions

An advantage of stabilizing macroeconomic policy over economic self-correction is that:

a. Stabilization policies achieve potential output with a lower aggregate price level.

b. Economic self-correction can take a decade or more.

c. Economic self-correction affects the aggregate price level but not the aggregate output level.

d. Stabilization policies are particularly effective to address supply shocks.

The aggregate supply curve will be vertical when:

a. the output can be increased without an increase in the price level.

b. the economy is operating at full-employment capacity.

c. output and price level rise together.

d. the aggregate demand curve is shifting to the left.

e. aggregate demand is absent.

Here is the question and the answers. But I need an explanation of WHY the answer is what it is. Any answers that don't answer why for each one will only get 1 star.


What effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and level of real output. Assume that all other things remain constant.

a. A widespread fear of depression on the part of consumers.

b. A $2 increase in the excise tax on a pack of cigarettes.

c. A reduction in interest rates at each price level.

d. A major increase in Federal spending for health care.

e. The expectation of rapid inflation.

f. The complete disintegration of OPEC, causing oil prices to fall by one-half.

g. A 10 percent reduction in personal income tax rates.

h. A sizable increase in labor productivity (with no change in nominal wages).

i. A 12 percent increase in nominal wages (with no change in productivity).

j. Depreciation in the international value of the dollar.

ANSWERS

(a) AD curve left, output down and price level down (assuming no ratchet effect).

(b) AS curve left, output down and price level up.

(c) AD curve right, output and price level up.

(d) AD curve right, output and price level up (any real improvements in health care resulting from the spending would eventually increase productivity and shift AS right).

(e) AD curve right, output and price level up.

(f) AS curve right, output up and price level down.

(g) AD curve right, output and price level up.

(h) AS curve right, output up and price level down.

(i) AS curve left, output down and price level up.

(j) AD curve right (increased net exports); AS curve left (higher input prices)

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