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Explain THREE (3) reasons why the AD curve slopes downward.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 23RQ: What are the economic reasons why the AD curve slopes down?

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How is recession illustrated in an AD/AS model?
How is pressure for inflationary price increases shown in an AD/AS model?
Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?
Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.
What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?
Review the problem in the Work It Out titled Interpreting the AD/AS Model. Like the information provided in that feature, Table 24.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia. Plot the AD/AS diagram from the data. Identify the equilibrium. Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?
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Question 3Explain fully why the AD curve has a negative slope. Use graphs to illustrate.
QUESTION 21 Why the AD curve might shift? Tax hikes/cuts. Booms/recessions in countries that buy our exports. Changes in government spending. All of the above are correct