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Exam 12: Aggregate Demand and Aggregate Supply

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Question 1

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What is the aggregate demand curve? What is the characteristic of its slope?

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The aggregate demand curve shows the rel...

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Question 2

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Why does aggregate demand shift outward by a greater amount than the initial change in spending?

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The basic reason is because of the multi...

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Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

Describe the change in short-run aggregate supply that should result from each of the following changes in determinants.Assume that nothing else is changing besides the identified change.(Use "Decrease" or "Increase.") (a)A rise in the average price of inputs; (b)An increase in worker productivity; (c)Government antipollution regulations become stricter; (d)A new subsidy program is enacted for new business investment in productive equipment; (e)Energy prices decline.

Would increased downward price flexibility lead to less severe or more severe recessions? Explain.

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

In the below diagram assume that the aggregate demand curve shifts from AD₁ in year 1 to AD₂ in year 2,only to fall back to AD₁ in year 3.

What is the effect on the multiplier when an increase in aggregate demand also causes the price level to rise?

Some economists argue that it is easier to resolve demand-pull inflation than cost-push inflation.Use the aggregate demand-aggregate supply (short-run)model to explain this assertion.

List the three major determinants that can cause a shift in the short-run aggregate supply.

What are five reasons for the downward price-level inflexibility,especially as it pertains to wages and prices?

List four government tax or spending policy options that would shift the short-run aggregate supply curve rightward.

Using the aggregate demand-aggregate supply (short-run)model,explain the impact of the public's expectations of severe inflation on real GDP and the price level.

List three events that would shift the short-run aggregate supply curve leftward.

How is the long-run aggregate supply curve sloped? Explain.

Economists think of three different aggregate supply curves based upon the time frame of observation.Briefly describe each.

Explain the relationship between the aggregate expenditures model in graph (A)below and the aggregate demand model in graph (B)below where aggregate demand is shifting.

What determines the equilibrium price level and the level of real GDP in the aggregate demand-aggregate supply (short-run)model?

Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.

How is the immediate short-run aggregate supply curve sloped? Explain.