Question : Assertion: Changes in aggregate demand have no impact on the equilibrium level of output and price level in an economy.
Reason: Changes in aggregate demand can shift the aggregate demand curve, leading to changes in the equilibrium level of output and price level in an economy.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Solution : The correct answer is (B) Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
The Assertion that changes in aggregate demand have no impact on the equilibrium level of output and price level in an economy is incorrect. Changes in aggregate demand do have an impact on the equilibrium level of output and the price level in an economy.
The Reason provided correctly explains this relationship. Changes in aggregate demand can shift the aggregate demand curve, representing the relationship between the price level and the quantity of goods and services demanded in an economy. When aggregate demand increases, it shifts the aggregate demand curve to the right, resulting in a higher equilibrium level of output and a potential increase in the price level. Conversely, a decrease in aggregate demand shifts the curve to the left, leading to a lower equilibrium level of output and a potential decrease in the price level.
Therefore, both the Assertion and Reason are correct, but the Reason is not the correct explanation of the Assertion. Changes in aggregate demand do have an impact on the equilibrium level of output and the price level in an economy.
Question : Assertion: Changes in the aggregate demand curve can cause shifts in the aggregate supply curve.
Reason: Changes in aggregate demand can affect businesses' expectations and decisions regarding production levels and future investments, resulting in shifts in the aggregate supply curve.
Question : Assertion: According to Keynesian theory, the equilibrium level is always achieved at the full employment level.
Reason: At full employment equilibrium, there is no involuntary unemployment.
Question : Assertion: An increase in the price level will always lead to a decrease in aggregate demand.
Reason: Higher prices reduce consumers' purchasing power, leading to a decrease in their spending and a subsequent decrease in aggregate demand.
Question : Assertion: Changes in aggregate supply can cause inflation in an economy.
Reason: Increases in aggregate supply can lead to higher production costs, which in turn can drive up prices and cause inflation.
Question : Assertion: An increase in government spending will always lead to an increase in aggregate demand.
Reason: Government spending directly stimulates consumer spending and business investment, leading to an increase in aggregate demand.
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