A. Aggregate demand refers to the total demand for goods and service in the economy over a given period of time and price level. On the other hand, Aggregate Supply refers to the total supply of goods and services in an economy over a given period of time and price level.
B. A reduction in government spending would result in reduction in aggregate demand, as the government would be now demanding less goods and services.
C. If consumers reduced their spending on products and services to reduce their level of credit card debt, both the AD and AS would decrease, as well as both Real GDP and price level to decrease.
D. The implementation of the “cash for clunkers” car program by the federal government resulted in an increase in aggregate demand by inducing the purchase of about 360,000 additional cars in July and August of 2009 (Copeland & Kahn, 2011). However, AS fell below one and a half months.
