Exam 33: Aggregate Demand and Aggregate Supply

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.

Other things the same,an increase in the price level makes consumers feel

Because not all prices adjust instantly to changing circumstances,an unexpected fall in the price level leaves some firms with higher-than-desired prices,and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Which of the following would cause prices to rise and real GDP to fall in the short run?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

The long-run effect of an increase in government spending is to raise

The long-run aggregate supply curve would shift right if immigration from abroad

If the price level is higher than expected,firms might raise their production in the short run if

Suppose a fall in stock prices makes people feel poorer.The decrease in wealth would induce people to

The long-run aggregate supply curve shifts left if

Other things the same,a decrease in the price level makes the dollars people hold worth

Historically,the change in real GDP during recessions has been

Most economists believe that classical theory explains the world in the short run,but not the long run.

The model of aggregate demand and aggregate supply explains the relationship between

Increased uncertainty and pessimism about the future of the economy decreases investment spending,shifting aggregate demand to the left.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers people become pessimistic regarding the future and retain that level of pessimism for some time. -Refer to Pessimism.What happens to the expected price level and what's the result for wage bargaining?

Over the last fifty years both real GDP and prices have trended upward in most countries.Continuing real GDP growth and inflation can be explained by

Other things the same,if the price level falls,households

Other things the same,if the price level rises by 2% and people were expecting it to rise by 5%,then some firms have

John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.