Which statement below is true of both aggregate supply and aggregate demand?

• A. Both are represented as curves that show the relationship between price level and quantity in the economy.
• B. Both are determined solely by consumer spending.
• C. Both always slope upward, indicating a direct relationship between price level and quantity.
• D. Both are unaffected by changes in government policy.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definitions of aggregate supply (AS) and aggregate demand (AD). Aggregate demand represents the total quantity of goods and services demanded across all levels of an economy at different price levels, while aggregate supply represents the total quantity of goods and services that producers are willing and able to supply at different price levels.
2. Step 2: Recognize that both aggregate supply and aggregate demand are graphically represented as curves on a graph where the vertical axis is the price level and the horizontal axis is the quantity of output (real GDP).
3. Step 3: Analyze the slope of each curve. Aggregate demand typically slopes downward, indicating an inverse relationship between price level and quantity demanded, while aggregate supply can slope upward in the short run, indicating a direct relationship between price level and quantity supplied.
4. Step 4: Consider the factors that determine each curve. Aggregate demand is influenced by consumer spending, investment, government spending, and net exports, not solely consumer spending. Aggregate supply is influenced by production costs, technology, and resource availability, among others.
5. Step 5: Evaluate the impact of government policy. Both aggregate demand and aggregate supply can be affected by government policies such as fiscal policy (taxes and spending) and monetary policy, so the statement that both are unaffected by government policy is incorrect.