Exam 22: Aggregate Demand and Supply Analysis

A positive supply shock causes ________ to ________.

A temporary supply shock that raises prices

Positive spending shocks lead to ________ inflation ________.

Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the long run,everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy. )

This theory views shocks to tastes (workers' willingness to work,for example)and technology (productivity)as the major driving forces behind short-run fluctuations in the business cycle because these shocks lead to substantial short-run fluctuations in the natural rate of output.

In the long run,following a combination of a negative demand shock and a temporary negative supply shock,

Everything else held constant,when output is ________ the natural rate level,wages will begin to ________,increasing short-run aggregate supply.

Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a company's ability to reduce production costs via outsourcing. Everything else held constant,this policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run.

The aggregate supply curve is the total quantity of

A permanent negative supply shock leads to ________ output ________.

Everything else held constant,an increase in the cost of production ________ aggregate ________.

Positive spending shocks lead to ________ output ________.

If workers demand and receive higher real wages (a successful wage push),the cost of production ________ and the short-run aggregate supply curve shifts ________.

Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run.

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the short run and ________ in inflation in the short run,everything else held constant.

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run,everything else held constant.

An autonomous monetary policy easing ________ real interest rates and ________ output in the short run,thereby ________ stock prices.

The long-run aggregate supply curve shifts to the right when there is

Suppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10),where π is inflation and Y is output;and the aggregate demand curve is Y= 11 - 0.5π. The equilibrium output is ________ and the equilibrium inflation rate is ________%.