In the aggregate demand/aggregate supply model, the vertical axis shows the values of ________ and the horizontal axis shows the values of ________.
A) the unemployment rate; the inflation rate
B) real Gross Domestic Product (GDP); the price level
C) the price level; real Gross Domestic Product (GDP)
D) the inflation rate; the unemployment rate

Question

Quizplus · Accepted Answer

The vertical axis of the aggregate demand/aggregate supply model shows the values of the price level, while the horizontal axis shows the values of real Gross Domestic Product (GDP). The price level represents the average prices of goods and services in the economy, while real GDP represents the total value of all goods and services produced in the economy adjusted for inflation. Therefore, C is the best choice as it correctly represents the standard layout of the model.

In the Aggregate Demand/aggregate Supply Model, the Vertical Axis Shows