Why does the aggregate demand curve slope downward?
What will be an ideal response?
The effect of higher prices on consumer wealth is one of several reasons why the aggregate demand curve slopes downward. Higher prices decrease the demand for goods and services because they erode the purchasing power of consumer wealth. Conversely, lower prices increase the demand for goods and services by enhancing the purchasing power of consumer wealth. Second reason comes from international trade. High domestic prices will depress a country’s export and stimulate imports. This will shift total expenditure curve downward and lower the real GDP.
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In the non-market-clearing model, "involuntary" unemployment results because
A) real wages are too high. B) real wages rise when aggregate demand increases. C) real wages fall when aggregate demand increases. D) wages and prices are sticky.
Government printing of money to finance government spending is called
A) irresponsible. B) an open-market purchase. C) sterilization. D) seigniorage.
Income elasticity of demand is greater than zero for all of the following except
a. restaurant meals b. beer c. owner-occupied housing d. food e. rental housing
_____ is a decision tool that helps take into account the anticipated reactions of competitors.
A. Concentration ratios B. Herfindahl-Hirschman index C. Game Theory D. Open collusion