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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971509

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Chapter
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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971509
Textbook Problem

Explain why the following statements are false.

a. “The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods.”

b. “The long-run aggregate-supply curve is vertical because economic forces do not affect long-run aggregate supply.”

c. “If firms adjusted their prices every day, then the short-run aggregate-supply curve would be horizontal.”

d. “Whenever the economy enters a recession, its long-run aggregate-supply curve shifts to the left.”

Subpart (a):

To determine
Why the statements are true or false.

Explanation

The supply is dependent upon the price level in the economy. When the price level is higher, the suppliers will be receiving higher income, and this would incentivize them to increase the supply in the economy and vice versa. The aggregation of the supply curves of all the firms in the economy is known as the aggregate supply curve. In the short run period, the aggregate supply curve represents the relationship between the price level in the economy and the supply by the firms.

The demand comes from all the economic agents such as the households, firms, and the government. The demand depends on the price level of the economy. The increase and decrease in the price level determine the level of demand in the economy...

Subpart (b):

To determine
Why the statements are true or false.

Subpart (c):

To determine
Why the statements are true or false.

Subpart (d):

To determine
Why the statements are true or false.

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