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Aggregate Demand & Aggregate Supply Practice Question

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Aggregate Demand & Aggregate Supply Practice Question

A typical first year college textbook with a Keynesian bent may as a question on aggregate demand and aggregate supply such as:

Use an aggregate demand and aggregate supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and real GDP:

  1. Consumers expect a recession
  2. Foreign income rises
  3. Foreign price levels fall
  4. Government spending increases
  5. Workers expect high future inflation and negotiate higher wages now
  6. Technological improvements increase productivity
We will answer each of these questions step-by-step. First, however, we need to set up what an aggregate demand and aggregate supply diagram looks like. We will do that in the next section.

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