Exam 9: Aggregate Demand and Aggregate Supply

If the economy is in equilibrium at full employment, an increase in aggregate demand will:

The marginal propensity to consume is always greater than unity.

Using aggregate demand and aggregate supply curves, graphically illustrate the effect of an increase in government spending on the price level and equilibrium level of output in the long- run. Assume that the economy is initially in long- run equilibrium at full employment.

The four components of the aggregate demand curve are:

Aggregate demand refers to the demand for a particular good or service.

In the short- run, an increase in the money supply will cause output:

An increase in the price level results in a decline in aggregate demand because higher prices will cause the nominal interest rates to increase and GDP to drop. This effect is called the:

When output falls below full employment output, we expect that the:

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

Compared to the long run aggregate supply curve, the short- run aggregate supply curve is relatively:

Figure 9.4 -Refer to Figure 9.4. An increase in aggregate supply is represented by:

List three things that could shift the aggregate demand curve to the right.

Using the AS- AD diagram, show the effects of an increase in the price of oil in the short run.

If an automobile maker producing a certain kind of car suddenly experiences a decrease in the demand for the car. In the short run,

Production inputs such as steel rods have prices that adjust very quickly.

A leftward shift in the aggregate demand curve cannot be caused by:

Figure 9.1 -Refer to Figure 9.1. An increase in government spending causes:

Indicate the effect of an unfavorable aggregate supply shock upon the short run aggregate supply curve.

If the economy is in long- run equilibrium at full employment, lowering taxes leads to a higher price level and a higher level of real GDP.

In the consumption function C = Ca + bY, the term b represents: