Question

The aggregate demand and aggregate supply model is a useful simplification of the macroeconomy used to explain short-run fluctuation in economic activity around its long-run trend.

a) The vertical axis of a diagram of the aggregate demand and aggregate supply curves measures which of the following?
A. An economy's price level.
B. The amount of a particular representative good produced in the economy.
C. The price of a particular representative good produced in the economy.
b) Which of the following are reasons that the short-run aggregate supply curve slopes upward?
A. As the price level rises, firms expand their production because they can sell their output for more money.
B. As the price level rises, firms find it more profitable to hire workers at any given wage.
C. As the price level rises, firms decrease their investment, because it is more expensive to purchase capital.

Answer 1

The correct answers are:

a) A. An economy's price level.

b) A. As the price level rises, firms expand their production because they can sell their output for more money.

Step-by-step explanation:

On the one hand, in this type of economic model, the aggregate supply and demand represent the economy's price and quantity level regarding the output of the country as a whole. Therefore that in the vertical axis of the diagram the curves measures the price level of the economy and in the horizontal axis the curves measure the output that the economy produces at that given price.

On the other hand, the slope of the aggregate supply is upward because of the same reason as it is in the supply curve, because of the law of the supply, that states that there is a direct relationship between the price of the good an its quantity offered. Thefore that when the price level rises the firms will produce more because they can sell their production at a higher price.