Question

Consider the different characteristics of the aggregate demand curve and the short‑run aggregate supply curve. For each statement below, determine which curve is being described.
a. Desired purchases of goods and services at different price levels
b. Shifts when productivity changes
c. Shifts when consumer wealth changes
d. Upward‑sloping
e. Real GDP that firms produce at various price levels
f. Shifts when the cost of oil changes significantly
g. Downward‑sloping

WORD BANK
aggregate demand
short-run aggregate supply

Answer 1

Answer:

a. aggregate demand

b. short-run aggregate supply

c. aggregate demand

d. short-run aggregate supply

e. short-run aggregate supply

f. short-run aggregate supply

g. aggregate demand

Explanation:

Aggregate Demand: The aggregate demand curve shows the level of output of goods and services demanded at different price levels. It slopes downwards because as the price level decreases, the quantity of goods and services demanded rises. Any change in consumption, investment, government spending, or net exports causes the aggregate demand curve to shift. A change in consumer wealth allows households to purchase more goods and services at all price levels. As a result, the aggregate demand curve shifts.

Short‑Run Aggregate Supply: The short‑run aggregate supply shows the level of output firms will produce at various price levels. In the short‑run, it slopes upwards because, as prices increase and input costs remain fixed, profits will increase with output. Any change in the cost of production shifts the short‑run aggregate supply curve. A change in the cost of oil shifts the aggregate supply curve, since oil is a major input in the production and transportation of most goods. A change in productivity changes the efficiency of firms, causing costs to change and the short‑run aggregate supply curve to shift.