Which statement best describes the aggregate demand and aggregate supply model?
A) Aggregate supply adjusts to equate aggregate demand at the prevailing market prices.
B) The price level adjusts to equate aggregate demand to aggregate supply.
C) Aggregate demand adjusts to equate aggregate supply at the prevailing market prices.
D) Both aggregate demand and supply adjust to become equal at the prevailing market prices.

Question

Quizplus · Accepted Answer

The aggregate demand and aggregate supply model states that the price level adjusts to equate the aggregate demand and aggregate supply. This means that as the price level changes, it affects the level of demand for goods and services and the level of output produced by firms. As the price level increases, there is a decrease in aggregate demand and an increase in aggregate supply, which eventually leads to a new equilibrium price level where the two are equal. Similarly, when the price level decreases, there is an increase in aggregate demand and a decrease in aggregate supply, which also leads to a new equilibrium price level. Therefore, the correct statement is that the price level adjusts to equate aggregate demand to aggregate supply.

Which Statement Best Describes the Aggregate Demand and Aggregate Supply