Answer to Question #94440 in Macroeconomics for Nomthandazo

Question

which one of the following statement regarding the aggregate demand -aggregate supply (AD-AS) model is correct
(1) the AS curve illustrate the level of total expenditure in the economy at various price levels
(2) the AD curve show the aggregate quantities of a specific product that are demanded at different prices
(3) the AD-AS model seeks to explain the general price level and the total production of goods and services
(4) the AD-AS model cannot be used to determine the changes in the general price level

Answer 1

(3) the AD-AS model seeks to explain the general price level and the total production of goods and services

Aggregate demand - aggregate supply model refers to the macroeconomic view of the total demand and supply curves of the country. Aggregate demand is total goods and services demand in a particular economy at given price level and time. Aggregate supply on the other hand is the total of final goods and services that firms intend to produce at a particular period of time. Thus, the AD-AS model is a macroeconomic model which explains general price level and output through relationship of the aggregate supply and aggregate demand.