Exam 33: Aggregate Demand and Aggregate Supply

Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.

Figure 33-7 -Refer to Figure 33-7. If the economy starts at point O, a short-run fall in output would be consistent with a movement to point

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.

Who is credited for the original development of the model of aggregate demand and aggregate supply?

If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

An increase in the expected price level shifts the short-run aggregate supply curve to the right.

Other things the same, what happens to the price level and quantity of output when an adverse shift in the short run aggregate supply curve occurs?

Suppose speculators lost confidence in foreign economies and bought more U.S. bonds. How would this affect net exports in the U.S., and which way would this cause the aggregate demand curve to shift?

The recessions associated with the business cycle come at regular intervals.

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

Suppose a nation experiences increased immigration from abroad. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Technological progress shifts the long-run aggregate supply curve to the right.

Which of the following shifts the long-run aggregate supply curve to the left?

Other things the same, what happens in the long run to the price level and quantity of output after a contraction in aggregate demand?

Which of the following is most commonly used to monitor short-run changes in economic activity?

Compare changes in the price level for a recession resulting from a shift in aggregate demand to that of a recession resulting from a shift in short run aggregate supply.

Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. -Refer to Scenario 33-1. What would happen to the dollar?

When looking at a graph of aggregate demand, which of the following is correct?

A decrease in the money supply will shift the long-run aggregate-supply curve to the left.​