Keynesian Concepts, Aggregate Demand, Aggregate Supply and Macroeconomic Stabilisation Practice Questions | University Admission Economics

University Admission Economics Exam

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In an open economy, aggregate demand is \(AD=C+I+G+(X-M)\). Suppose imports rise automatically when national income rises. Holding all other components fixed, which statement is most accurate about the AD curve and its slope?

Select one option.

Higher income raises \(M\), so \(AD\) rises and the AD curve shifts right.
Higher income raises \(M\), so the AD curve becomes upward sloping.
Higher income raises \(M\), so the AD curve is flatter because leakages increase with income.
Higher income raises \(M\), so the AD curve shifts left at every price level.
Higher income raises \(M\), so \(AD\) becomes independent of the price level.

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