Exam 33: Aggregate Demand and Aggregate Supply

Suppose the expected price level increases. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Which of the following would cause stagflation?

Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply is vertical.

Make a list of things that would shift the aggregate demand curve to the right.

Most economist agree that money changes real GDP in both the short and long run.

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

Figure 33-3 -Refer to Figure 33-3. Starting from point A and assuming that aggregate demand is held constant, in the long run the economy is likely to experience a

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 the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States?

Recessions come at

Explain the short-run effects on output and the price level from a decrease in the aggregate-demand curve.

During periods of stagflation, what happens to output and prices in the economy?

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?

The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.

If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.

A decrease in the money supply causes the interest rate to rise so that investment falls.

The exchange-rate effect helps explain what feature in the aggregate demand and aggregate supply model?

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.