3.1 Aggregate Demand

• Increased investment leads to higher Aggregate Demand (AD)


  True
• Higher consumer spending increases Aggregate Demand
• What happens to economic output when Aggregate Demand (AD) increases?

  Output increases
• The equilibrium point is where the AD curve intersects the SRAS curve.
• What is Aggregate Demand (AD)?

  Total demand in an economy
• What are the five main components of Aggregate Demand (AD)?

  Consumer spending, investment, government spending, net exports, and price level
• What happens to economic output when AD increases?

  Output increases
• Arrange the steps involved in the relationship between AD and economic output:

  1️⃣ Increase in AD

  2️⃣ Businesses produce more goods

  3️⃣ Economic output rises

  4️⃣ New equilibrium is reached
• What effect does increased government spending have on Aggregate Demand (AD)?

  Increases AD
• Which component of AD is directly influenced by government policies?

  Government Spending
• The equilibrium output occurs where the AD curve intersects the SRAS curve.
• What happens to economic output when AD decreases?

  Output decreases
• What happens to AD when consumer confidence increases?

  AD increases
• What factors can shift the AD curve to the left?

  Higher taxes, higher interest rates
• The equilibrium output is where the AD curve intersects the SRAS curve, indicating balanced economic activity.


  True
• Policymakers use fiscal and monetary policies to stabilize the economy by analyzing factors that shift the AD curve.


  True
• Higher prices lead to lower AD
• Changes in the key factors that influence AD can shift the AD curve to the left or right.


  True
• A shift in the AD curve leads to a new equilibrium level of output and price in the economy.


  True
• The equilibrium output is determined by the intersection of the AD and Short-Run Aggregate Supply (SRAS) curves.


  True
• The intersection of AD and SRAS curves indicates equilibrium output.
• Higher net exports (exports minus imports) increase Aggregate Demand.
• Higher interest rates reduce investment and consumer spending, decreasing AD.
• Why is AD a central concept in macroeconomic modeling?

  Represents total demand in economy
• What does Aggregate Demand (AD) measure in an economy?

  Total demand for goods
• Higher net exports increase Aggregate Demand
• Order the factors that shift the Aggregate Demand (AD) curve based on their primary effect:

  1️⃣ Price Level (inverse relationship, shifts left)

  2️⃣ Consumer Spending (positive relationship, shifts right)

  3️⃣ Investment (positive relationship, shifts right)

  4️⃣ Government Spending (positive relationship, shifts right)

  5️⃣ Net Exports (positive relationship, shifts right)
• What is the effect of an increase in Aggregate Demand (AD) on economic output?

  Output increases
• The intersection of the AD and SRAS curves indicates the equilibrium output level in the economy.


  True
• Higher prices reduce Aggregate Demand due to increased borrowing costs and reduced purchasing power.


  True
• Increased consumer confidence and income lead to higher consumer spending, which shifts the AD curve to the right.


  True
• An increase in Aggregate Demand (AD) leads to a rise in economic output.