Exam 7: Aggregate Demand and Aggregate Supply

Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels) The table shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. What is the initial real GDP and price level?

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

Changes in aggregate demand can be caused by changes in I. wages. II. raw materials costs. III. government spending. IV. government regulations that increase the cost of doing business.

All of the following contributed to the U.S. recession of 2001 except

In the long run, real output can be less than, equal to, or greater than the economy's potential output.

Which of the following statements is true of the economy in the long run? In the long run, I. real GDP eventually moves to potential output because all wages and prices are assumed to be flexible. II. the economy can achieve its natural level of employment and potential output at any price level. III. there is no cyclical unemployment.

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment.

To eliminate an inflationary gap, policy-makers may pursue

Suppose the U.S. government decides to increase its imports from Turkey. All other things unchanged,

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. Now suppose that there is an increase in government purchases. In the short-run,

Which of the following will decrease the aggregate quantity of output supplied?

The short run in macroeconomic analysis is a period

Which of the following will not cause a change in aggregate demand?

Which of the following occurs if an economy experiences a recessionary gap? I. Actual real GDP is less than potential output. II. Actual real GDP is greater than potential output. III. Unemployment is less than the natural rate. IV. Unemployment is greater than the natural rate.

Suppose net exports decreases by $100 million due to a slump in foreign economies. If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD₂. As a result,

If an economy is operating at its potential output level, a change in aggregate demand or short-run aggregate supply will induce an inflationary or a recessionary gap.

Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level. What is the value of the multiplier?

Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the short-run?