Question

Which of these questions does aggregate demand help us answer? I. What determines the total amount of our output that individuals, firms, governments and foreigners want to buy? II. What is the economy's long-run real Gross Domestic Product (GDP)? III. What determines the economy's equilibrium price level and the rate of inflation?

Answer 1

The correct answer is I and III.

Step-by-step explanation:

The aggregate demand curve of an economy shows the overall demand in the economy as a whole. It is composed of consumption expenditure, government expenditure, investment expenditure, and net exports.

In other words, it shows the demand by households, firms, government, and foreign consumers.

The aggregate demand curve also helps in determining the price level. When there is a consistent increase in the general price level over a long period, it is called inflation.