An economy is initially in equilibrium. Suppose that the government decides to increase spending. Sort the statements in order so that they describe what happens. Drag and drop options into correct order and submit. For keyboard navigation... SHOW MORE ✓ = Spending on consumption, investment, and net exports decrease as the price level rises III = III III = III = = III Marginal costs begin to rise as production increases Businesses start to increase price. Businesses respond by increasing output A new equilibrium is reached at a higher price and higher level of real GDP The aggregate demand curve shifts to the right

The aggregate demand/supply model demonstrates how total supply and total demand interact at the macroeconomic level as well as what factors affect total supply or total demand for the economy. Consumption spending, investment spending, government spending, and spending on exports minus imports make up the four parts that make up aggregate demand. Raising any of these factors causes the AD curve to move to the right, which boosts real GDP and puts pressure on the price level to rise. Every component decrease causes the AD curve to move to the left, lowering the price level and real GDP as a result. Consumers typically spend more when they are more optimistic about the direction of the economy. Businesses choose to spend more on investments when there is a high level of business confidence since they think the return on their investment will be significant in the future. In contrast, when consumer or corporate confidence wanes, expenditure on consumption and investments falls.