Question

The aggregate demand curve shows an inverse relationship between prices and real planned expenditure.

True

False

If real GDP is above its natural level, there will be downward pressure on wages and prices.

True

False

Answer 1

1. FALSE

Aggregate demand refers o the total value of goods and services that are being demanded in a country in a particular time period. It shows the inverse relationship between price and demand of the goods. Thus the given statement is not true. There is no inverse relationship between the price and real planned expenditure as they both have positive relationship. With higher prices, expenditure increases and vice-versa.

2. FALSE

When real GDP is above its natural level, it created the inflationary gap. As a result of that, it created inflationary pressures on the economy. Thus it will increase prices of the goods and as a result of that, wages will also start increasing. This means there will be upward pressure on wages and prices as and in case of inflationary gap.