Aggregate-demand help??????

Question

Explain why the following statements are false......

a) "The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods".

b)"The long-run aggregate-supply curve is vertical because economic forces do not affect long-run agregate supply".

c)"If firms adjusted their prices everyday, then the short run aggregate-supply would be horizontal"

d) "Whenever the economy enters a recession, its long-run aggregate-supply curve shifts to the left".

i would really appreciate if anyone helps me with this question....thanx in advance

Answer 1

a) "The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods".

This statement is false since it is meaningless. Individual goods demand curves are relating price and demand quantitites in physical units. You cannot add diifferent goods expressed in quantities.. So such summing up is meaningless. Aggregate demand cutve relates relates demand for consumption, investment and net exports at different levels of GDP or nation's income. With rise in income, demand goes up and hence it cannot slope downwards like individual demand curves which relates demand to price. Aggrgate demand curve is upward rising as with rise in income demand in the form of consumption, investment are expected to raise the supply of goods.

b)"The long-run aggregate-supply curve is vertical because economic forces do not affect long-run agregate supply".

Answer: This statem,ent is false because the over time technologicalk progress enhances productivity of land, labor and capital and over time additional capital equipment can be installed to produce more. So longer the term the more So, the longrun supply curves shifts to the right. That the shortrun or long run supply curves are vertical is that fopr any given run, the supply does not change with increase in national income. But if one were to plot aggregate supply surve with succesively higher incomes at different successive time points, it would be a upward rising curve.

c)"If firms adjusted their prices everyday, then the short run aggregate-supply would be horizontal"

Answe: This is false because in the short run whether the firms adjust their prices or not, they cannot increase supply beyond their existing caacity to produce since the plant and machiner they have and the production technology they use are invariant in the shortrun.

d) "Whenever the economy enters a recession, its long-run aggregate-supply curve shifts to the left".

Answer: This is a false statement because depression or recession is ccause by excess supply capacity which means that the available capacity is more than the aggregate demand and which has started falling. The longrun supply curve cannot shift to the left because that would mean that existing capacity to supply is being demolished. It is the capacity utilisation that goes down as the economy enters into recession.