Exam 14: Aggregate Demand and Aggregate Supply

Suppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?

In 1986, OPEC countries increased their production of oil. What was the result?

Suppose the economy was in long-run equilibrium when there is a sudden increase in interest rates. What happens in the short run after the increase in the interest rates?

Which of the following does NOT determine the long-run level of real GDP?

Pessimism about the future leads to falling prices and rising unemployment.

If the government increased the money supply in response to a decrease in aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

What does a fall in the economy's overall level of prices tend to do?

What are the effects of a decrease in the price level?

Which of the following would shift the AS curve to the right?

Use the misperceptions theory to discuss the economic forces that shift the aggregate-supply curve when the expectations about the overall price level change.

An increase in the money supply shifts the long-run aggregate-supply curve to the right.

What is the effect of increases in the capital stock and in the money supply on prices in the long run?

What did NOT happen during the onset of the Great Depression?

Figure 14-4 -Refer to Figure 14-4. Consider the short-run aggregate-supply curve shown. a. Calculate approximately the elasticities of the curve at two price levels, P = 20 and P = 100. (Hint: The price elasticity formula is EP = percentage change in Y / percentage change in P.) b. Explain the meaning of the elasticity in the context of the AS curve. c. Compare the two elasticities found in (a) and discuss the results.

Which statement best describes the aggregate demand and aggregate supply model?

Scenario 14-2 The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time. -Refer to the Scenario 14-2. Which statement is consistent with the aggregate demand and aggregate supply theory?

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, how can they offset the initial shift?

What did Keynes believe caused recessions and depressions?

What did Keynes believe that economies experiencing high unemployment should do?

What is an important determinant of the price at which Canadian producers can sell their oil?