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#5. Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and the level of real output. Aggregate demand is a schedule or curve that shows the total quantity of goods and services demanded at different price levels. Aggregate supply is a schedule or curve that shows the total quantity of goods and services produced at different price levels. a. a reduction in the economy’s real interest rate. AD curve would shift to the right, an increase in aggregate demand. b. A major increase in the Federal spending for health care (with no increase in taxes). AD curve would shift to the right, an…show more content…
Real output is the total amount of goods and services produced within an economy in a given period of time valued in constant currency. A reduction in aggregate demand tends to reduce real output, rather than price level because less demand does not lower the cost to produce goods and services therefore manufacturers are more likely to produce less of an item rather than lower its price. #10. Using the concept of the multiplier, explain why mass layoffs by large companies such as Boeing or General Motors are a concern to the citizens and leaders where those firms are located. The multiplier is the ratio of a change in GDP to an initial change in spending. The amount of spending affects total output of the economy. Mass layoffs by large companies are a concern to the citizens and leaders where those firms are located because this loss of jobs will lead to a decrease in spending because those who are unemployed are not able to spend as much money on goods and services. This unemployment will also cause local businesses to

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