Question

What does the aggregate demand and aggregate supply graph represent?

1) The relationship between the total demand and total supply in an economy
2) The relationship between the price level and the quantity of goods and services demanded and supplied in an economy
3) The relationship between the government spending and taxation in an economy
4) The relationship between the interest rate and investment in an economy

Answer 1

The aggregate demand and aggregate supply graph represents the relationship between the price level and the quantity of goods and services demanded and supplied in an economy.

Step-by-step explanation:

The aggregate demand and aggregate supply graph represents the relationship between the price level and the quantity of goods and services demanded and supplied in an economy.

At the intersection of the aggregate supply and aggregate demand curves, the graph shows the equilibrium level of real GDP and the equilibrium price level in the economy.

As the price level rises, aggregate supply rises and aggregate demand falls until the equilibrium point is reached.