DragIT - Aggregate demand and supply
The above diagram shows an aggregate demand curve and an aggregate supply curve, with equilibrium real national income (Ye) and the price level (Pe) where the two curves intersect.
First, drag the two lines in turn to show the influence of (a) increased aggregate demand and (b) increased costs on the price level and national income.
Second, click the 'Rotate AS line' button so that the AS curve becomes more elastic and then again drag the two lines in turn and note the effects on Ye and Pe.
Referring to the above diagram, are the following statements true or false? In each case assume that nothing else changes. (Try dragging the lines to check on your answer.)
1 |
Shifts in aggregate supply and demandAn increase in aggregate demand will cause higher inflation. |
2 |
Shifts in aggregate supply and demandAn increase in costs will make the aggregate supply curve more inelastic. |
3 |
Shifts in aggregate supply and demandThe less responsive is AS to a rise in AD, the more prices will rise for a given increase in AD. |
4 |
Shifts in aggregate supply and demandAn increase in expenditure tax will shift both the aggregate demand and supply curves to the left. |
5 |
Shifts in aggregate supply and demandAn improvement in productivity will shift both the aggregate demand and supply curves to the right. |