While sticking with a new strategy of letting market forces determine prices while producing more to keep customers, OPEC has stated that oil prices will not be increasing for the remainder of 2015 due to increased supplies and falling demand in China. OPEC members had initially thought that crude oil prices would rise to $70 minus− $80 a barrel by the end of 2015, but have revised their forecast down to a price of
$40 minus− $50 a barrel. Despite the drop in price, OPEC has decided to stick with its new production strategy so new supplies from non-OPEC countries would not cut into OPEC's share of the market, even though the low prices are not bringing in enough revenue for the member countries to balance their budgets. In a September 2015 report, the U.S. Energy Information Administration reported that global oil output would exceed projected consumption by more than 2 million barrels a day in
2015. Show
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Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?Answer and Explanation:
In the above-given statement, the dynamic model of aggregate supply and aggregate demand made assumptions except for the potential real GDP and aggregate demand decrease continuously.
What are the assumptions of the aggregate expenditure model?To develop a simple model, we assume that there are only two components of aggregate expenditures: consumption and investment. In the chapter on measuring total output and income, we learned that real gross domestic product and real gross domestic income are the same thing.
What is the main point made by the aggregate demand aggregate supply model?Key points
The aggregate demand/aggregate supply model is a model that shows what determines total supply or total demand for the economy and how total demand and total supply interact at the macroeconomic level. Aggregate supply is the total quantity of output firms will produce and sell—in other words, the real GDP.
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