According to classical economists, aggregate demand primarily determines
A.
the price level.
B.
total production in the economy.
C.
levels of national output and income.
D.
aggregate supply at full employment.
C. levels of national output and income.
No, A is the answer.
You are correct, I apologize for my mistake. A is the correct answer. Classical economists argue that aggregate demand determines the general price level in the economy, while aggregate supply is determined by factors such as technology, labor, and capital. Thank you for pointing that out.
C. levels of national output and income.
The answer to this question is C. According to classical economists, aggregate demand primarily determines levels of national output and income.
To understand why aggregate demand is seen as the primary determinant of national output and income, we need to understand the concept of aggregate demand and how it relates to the overall functioning of an economy.
Aggregate demand refers to the total demand for goods and services in an economy at a given time. It is composed of four components: consumption (C), investment (I), government spending (G), and net exports (X-M). The formula for aggregate demand can be written as AD = C + I + G + (X-M).
Classical economists believe that the level of output and income in an economy is determined by the level of aggregate demand. If aggregate demand is high, then producers will be incentivized to increase their production in order to meet the higher demand for goods and services. This leads to an increase in total production in the economy.
On the other hand, if aggregate demand is low, producers will reduce their production levels since they don't have enough demand for their goods and services. This results in a decrease in total production in the economy.
Therefore, classical economists argue that aggregate demand plays a crucial role in determining the overall level of output and income in an economy.
In summary, according to classical economists, aggregate demand primarily determines levels of national output and income in an economy. When aggregate demand is high, it leads to higher production levels, and when aggregate demand is low, it leads to lower production levels.