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Macro Assignment 3

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Filza Sahar
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9 views3 pages

Macro Assignment 3

Uploaded by

Filza Sahar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Assignment 3

Bahria University - Karachi Campus

Student: Filza Sahar


Student Enrollment Number: 05-171222-151
Course: Macroeconomics ECO 121

Macroeconomics Assignment 3
Q1: Explain the difference between aggregate demand curve and the desired
aggregate expenditure curve .
Aggregate Demand (AD) Curve: Represents the total quantity of goods and services
demanded in an economy at various price levels, holding other factors constant.
Desired Aggregate Expenditure (AE) Curve: Represents the total planned spending in
an economy at different levels of real GDP.

Q2:
a) What are the factors affecting aggregate Supply curve?
Technology, input prices, expectations, and government policies influence AS.

b) If the price level rises and the money wage rate remains constant, what
happens to the quantity of real GDP supplied.
If the money wage rate remains constant, an increase in the price level leads to higher
profits and an increase in the quantity of real GDP supplied.

c) If potential GDP increases, what happens to the aggregate supply curve? Do


LAS curves shift or is there a movement along the LAS curve? Does the SAS
curve shift or is there movement along the SAS curve?
If potential GDP increases, the Long-Run Aggregate Supply (LAS) curve does not
shift, but there is movement along the curve. The Short-Run Aggregate Supply (SAS)
curve shifts to the right.

Q3:
a) What does the aggregate demand curve show? What are the factors
affecting aggregate demand curve?
Represents the total quantity of goods and services demanded at different price
levels.
Factors affecting AD include consumption, investment, government spending, and
net exports.

b) Why does the aggregate demand curve slope downward?


Due to the wealth effect, interest rate effect, and international trade effect.

c) How do the change in expectations, fiscal policy and monetary policy change
the aggregate demand curve?
Expectations: Positive expectations may shift AD to the right.
Fiscal Policy: An increase in government spending or a decrease in taxes can shift AD
to the right.
Monetary Policy: An increase in the money supply can also shift AD to the right.

Q4: How do fluctuations in aggregate demand and short run aggregate supply
bring fluctuation in real GDP and potential GDP?
Fluctuations in Aggregate Demand (AD) and Short-Run Aggregate Supply (SAS) can
lead to changes in real GDP and potential GDP.
An increase in AD may lead to an increase in real GDP in the short run, but it might
cause inflation.
A decrease in AD or an adverse shock to SAS can lead to a decrease in real GDP in the
short run.

Q5:
a) How does a change in price level influence the AE curve and the AD curve?
An increase in the price level reduces the real value of money, leading to a decrease in
Aggregate Expenditure (AE) and a leftward shift of the Aggregate Demand (AD)
curve.

b) If autonomous expenditure increases with no change in the price level, what


happens to the AE curve and the AD curve?
An increase in autonomous expenditure, with no change in the price level, leads to an
upward shift of the AE and AD curves.

c) How does real GDP change in the long run when autonomous expenditure
increases?
In the long run, an increase in autonomous expenditure may lead to higher prices, but
real GDP tends to return to the potential GDP level.

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