2.1 Aggregate Demand and Aggregate Supply

• An increase in net exports increases Aggregate Demand (AD).


  True
• How do lower production costs affect Aggregate Supply (AS)?

  Increase AS
• Match the factor affecting Aggregate Supply (AS) with its effect:

  Cost of Production ↔️ Lower costs increase AS

  Availability of Resources ↔️ More resources increase AS

  Productivity ↔️ Higher productivity increases AS

  Technology ↔️ Advancements increase AS

  Government Policies ↔️ Favorable policies increase AS
• What is Aggregate Demand (AD)?

  Total demand for goods
• Lower costs of production lead to an increase in AS
• Lower costs of production lead to an increase in AS
• The X-axis of the AD/AS graph represents real GDP
• Steps an economy takes to adjust from disequilibrium to equilibrium:

  1️⃣ Identify the cause of disequilibrium

  2️⃣ Prices and quantities adjust

  3️⃣ A new equilibrium is reached
• Net exports are calculated as the difference between exports and imports
• Changes in production costs can cause shifts in the AS curve.
• Match the factor affecting AD with its effect:

  Consumer Spending (C) ↔️ Increase in consumer spending increases AD

  Investment Spending (I) ↔️ Increase in investment spending increases AD

  Government Spending (G) ↔️ Increase in government spending increases AD

  Net Exports (X - M) ↔️ Increase in net exports increases AD
• Lower costs of production will shift the AS curve to the right.
• Order the factors that influence Aggregate Supply (AS):

  1️⃣ Cost of Production

  2️⃣ Availability of Resources

  3️⃣ Productivity

  4️⃣ Technology

  5️⃣ Government Policies
• An increase in net exports (exports minus imports) increases AD
• Advancements in technology increase Aggregate Supply
• Changes in AD factors will shift the AD curve.


  True
• The equilibrium in the AD/AS model determines the equilibrium price level and output level.


  True
• The equilibrium in the AD/AS model represents a balance where total quantity demanded equals total quantity supplied.

  True
• What effect does an increase in consumer spending have on Aggregate Demand (AD)?

  Increases AD
• Aggregate Supply (AS) is the total quantity of goods and services that firms are willing and able to produce at different price levels
• Aggregate Supply (AS) is the total quantity of goods and services that firms are willing and able to produce at different price levels in an economy.


  True
• An increase in government spending decreases AD.

  False
• What are the four main factors influencing AD?

  Consumer, Investment, Government, Net Exports
• Where does equilibrium occur in the AD/AS model?

  AD and AS intersect
• What is disequilibrium in the AD/AS model?

  Excess demand or supply
• Match the shift in AD or AS with its effects on price and output:

  Increase in AD ↔️ Price and output rise

  Decrease in AS ↔️ Price rises, output falls

  Decrease in AD ↔️ Price and output fall

  Increase in AS ↔️ Price falls, output rises
• Shifts in AD and AS occur when changes in factors other than price affect demand and supply.

  True
• A decrease in consumer confidence leads to a decrease in Aggregate Demand (AD).

  True
• The availability of resources is a key factor influencing Aggregate Supply (AS).


  True
• Match the factor influencing AD with its effect:

  Consumer Spending (C) ↔️ Increase in consumer spending increases AD

  Investment Spending (I) ↔️ Increase in investment spending increases AD

  Government Spending (G) ↔️ Increase in government spending increases AD

  Net Exports (X - M) ↔️ Increase in net exports increases AD
• Lower costs of production can lead to an increase in Aggregate Supply (AS).


  True
• Aggregate Supply (AS) is influenced by factors such as the cost of production
• Consumer spending is a key factor that influences Aggregate Demand
• Equilibrium in the AD/AS model occurs where the AD and AS curves intersect
• Higher productivity in an economy increases Aggregate Supply
• An increase in Aggregate Demand leads to a rise in both equilibrium price and output.


  True
• Match the shift in AD or AS with its effects on equilibrium:

  Increase in AD ↔️ Price and output rise

  Decrease in AS ↔️ Price rises, output falls

  Increase in AS ↔️ Price falls, output rises
• A shift in AD or AS affects the equilibrium price level and real GDP.

  True
• An increase in AS lowers prices and increases production.

  True
• The AD/AS model can analyze how changes in the economy affect equilibrium price level and real GDP.


  True