Aggregate demand?

Question

can someone plz help me with this 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".

thanx for the help

Answer 1

a) it is downward sloping because there is a negative relationship between the level of demand for the goods and products and their price levels. (common sense : the higher the prices are the less demand to purchase them)

b) LRAS is vertical because the capacity of production in the long run is limited and fixed at the certain level in which producers are not able to go beyond that no matter what will be the price level.

c) SRAS will be vertical if the price of products is fixed at all level of production so producers can not change prices every day if they do so, SRAS will be postively slopped not horizontal

d) if SRAS shifts to the left that means we will have inflation and less GDP , however, recession means that we have Deflation and Less GDP , so these are unrelated.

Answer 2

a) There are three reasons for a downward sloping AD curve, the interest rate effect, real balance effect and foreign exchange effect. Since none of those are a, a cannot be correct.

b) The LRAS is vertical because in the Long Run, prices do not effect production, other economic forces do.

c) If firms adjsut their prices every day, it would be tough for buyers and sellers to make pricing decisions, and their expecations would adapt to what the businesses are doing.

d) LRAS does not reflect recessions, recessions are when GDP is below the LRAS GDP.