Exam 15: Aggregate Demand and Aggregate Supply Analysis

If the short-run aggregate supply increases by less than the long-run aggregate supply,then,at the short-run equilibrium

A decrease in the price level results in a(n)________ in the quantity of real GDP demanded because a lower price level ________ consumption,investment,and net exports.

Figure 15-3 -Refer to Figure 15-3.Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y₁ represents potential GDP.

Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level,particularly with respect to decreases in aggregate demand.Describe how the aggregate demand curve is different in the dynamic model as compared to the static model.Describe how potential GDP is different in the dynamic model as compared to the static model.

If potential GDP is equal to $600 billion,what does the long-run aggregate supply curve look like?

Proponents of the real business cycle model argue that the short-run aggregate supply curve is

For reasons including overproduction in the United States, a decrease in global demand, and limited production cuts by OPEC, the price of oil continued to fall during 2017. The falling prices have led OPEC to institute further cuts in oil production, but this effort has been thwarted by OPEC member Libya, whose production increased to 855,000 barrels a day, roughly triple its daily output from the previous year. Libya has Africa's largest oil reserves, but political unrest and militia blockades have severely restricted output in recent years. Due to political instability, OPEC had excluded Libya, Nigeria, and Iran from its agreement to cut production in 2016, but now all three countries have increased production. According to Michael Lynch, president of Strategic Energy and Economic Research, "A lot of experts figured things were so unstable in Libya and politics were so opaque that they did not want to factor in more supply from there. OPEC has been wounded. It gets back to the problem that OPEC has a lot of members in bad shape, making it difficult for them to call on everybody to make sacrifices equally. So they excluded those three and now it's come back to bite them." In late May, OPEC announced an extension to its cutback agreement, but in the month that followed, oil prices fell 16 percent. The same month, Libya announced plans to increase oil production to 1.5 million barrels a day by the end of 2018, and to 2.2 million barrels a day by 2023. Source: Clifford Krauss, "Libya's Increased Oil Production Thwarts OPEC's Reduction Plans," New York Times, June 20, 2017. -Refer to the Article Summary.The unexpected increase in the supply of oil mentioned in the article summary resulted in a decrease in the price of oil.When the price of oil falls unexpectedly due to a supply shock,the equilibrium price level ________ and the unemployment rate ________ in the short run.

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,an increase in the expected price of an important natural resource would be represented by a movement from

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point A.If the economy experiences a negative supply shock,where will the eventual short-run equilibrium be?

Which of the following best describes the "wealth effect"?

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes.How does this increased pessimism affect the aggregate demand curve?

When the price level falls from 135 to 120,the aggregate level of GDP supplied falls from $140 billion to $125 billion.This ________ relationship represents the ________ relationship between GDP and the price level.

Inflation will

A decrease in the price level will

An increase in imports increases aggregate demand.

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,a decrease in the size of the labor force would be represented by a movement from

Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy.As a result

Which of the following models advocate that the quantity of money should be increased at a constant rate?

In September of 2007,the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year.Explain how lower interest rates affect the aggregate demand curve.

The long-run aggregate supply curve shows the relationship between the ________ and ________.