Which of the following best describes the aggregate demand and aggregate supply model?
A)Aggregate supply adjusts to satisfy aggregate demand at the prevailing market prices.
B)The price level adjusts to bring aggregate demand and supply into balance.
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

In the aggregate demand and aggregate supply model, the price level is seen as the mechanism that brings the two sides of the market into balance. When aggregate demand exceeds aggregate supply, the price level rises, reducing the quantity demanded and increasing the quantity supplied until a new equilibrium is reached. Conversely, when aggregate supply exceeds aggregate demand, the price level falls, increasing the quantity demanded and reducing the quantity supplied until a new equilibrium is reached. Therefore, choice B is the best description of the AD-AS model.

Which of the Following Best Describes the Aggregate Demand and Aggregate