All Flashcards
How does increased consumer confidence affect Aggregate Demand?
Increased consumer confidence leads to increased consumer spending, shifting the AD curve to the right.
How does a decrease in government spending affect Aggregate Demand?
A decrease in government spending leads to a decrease in Aggregate Demand, shifting the AD curve to the left.
How do increased interest rates affect Aggregate Demand?
Increased interest rates discourage borrowing and investment, decreasing Aggregate Demand and shifting the AD curve to the left.
How does an increase in exports affect Aggregate Demand?
An increase in exports increases net exports, which increases Aggregate Demand, shifting the AD curve to the right.
How does a decrease in imports affect Aggregate Demand?
A decrease in imports increases net exports, which increases Aggregate Demand, shifting the AD curve to the right.
How does an increase in the price level affect the quantity of Aggregate Demand?
An increase in the price level causes a movement along the AD curve, decreasing the quantity of Real GDP demanded due to the real wealth, interest rate, and foreign trade effects.
How does a decrease in the price level affect the quantity of Aggregate Demand?
A decrease in the price level causes a movement along the AD curve, increasing the quantity of Real GDP demanded due to the real wealth, interest rate, and foreign trade effects.
How does increased inflation in a foreign country affect a domestic country's Aggregate Demand?
Increased inflation in a foreign country makes domestic goods relatively cheaper, increasing exports and Aggregate Demand in the domestic country.
How does a recession in a foreign country affect a domestic country's Aggregate Demand?
A recession in a foreign country decreases demand for domestic exports, decreasing Aggregate Demand in the domestic country.
If firms expect future economic growth, how will this affect Aggregate Demand?
Firms are likely to increase investment spending, increasing Aggregate Demand.
What does a rightward shift of the AD curve indicate?
An increase in Aggregate Demand at every price level.
What does a leftward shift of the AD curve indicate?
A decrease in Aggregate Demand at every price level.
On an AD/AS graph, what do the axes represent?
Vertical axis: Price Level; Horizontal axis: Real GDP.
How is equilibrium determined on an AD/AS graph?
At the intersection of the Aggregate Demand (AD) and Aggregate Supply (AS) curves.
If government spending increases, show the effect on the AD curve.
The AD curve shifts to the right.
If consumer confidence decreases, show the effect on the AD curve.
The AD curve shifts to the left.
What does a movement along the AD curve represent?
A change in the quantity of Real GDP demanded due to a change in the price level.
How does an increase in net exports appear on an AD/AS graph?
The AD curve shifts to the right.
How does a decrease in investment spending appear on an AD/AS graph?
The AD curve shifts to the left.
How would you graphically represent the effect of increased consumer wealth on the AD curve?
Shift the AD curve to the right.
What is the impact of increased government spending on infrastructure on AD?
Increases Aggregate Demand, shifting the AD curve to the right.
What is the impact of tax cuts on AD?
Increases disposable income, leading to increased consumer spending and a rightward shift of the AD curve.
What is the impact of increased tariffs on imports on AD?
Initially increases net exports, leading to a rightward shift of the AD curve. However, retaliation from other countries could offset this.
What is the impact of decreased government regulation on businesses on AD?
May encourage investment spending, leading to a rightward shift of the AD curve.
What is the impact of increased government subsidies for education on AD?
Increases human capital, potentially leading to increased productivity and a rightward shift of the AD curve in the long run.
How does contractionary fiscal policy affect AD?
Decreases government spending or increases taxes, leading to a leftward shift of the AD curve.
How does expansionary fiscal policy affect AD?
Increases government spending or decreases taxes, leading to a rightward shift of the AD curve.
What impact does a decrease in income taxes have on AD?
Increases disposable income, leading to increased consumer spending and a rightward shift of the AD curve.
What is the effect of increased transfer payments (e.g., unemployment benefits) on AD?
Increases disposable income for recipients, leading to increased consumer spending and a rightward shift of the AD curve.
How does a policy that encourages increased savings affect AD?
May decrease consumer spending in the short run, leading to a leftward shift of the AD curve. However, increased savings could lead to increased investment in the long run.