Exam 27: Aggregate Demand, Aggregate Supply, and Inflation

For a given level of inflation, if there is a greater willingness by foreigners to purchase domestic goods, then the ________ shifts ________.

Inflation shocks and shocks to potential output are called ________ shocks.

For a given level of inflation, if there is a greater reluctance by foreigners to purchase domestic goods, then the ________ shifts ________.

Stagflation is a combination of ________ and ________.

If the Fed decides to tighten monetary policy because the inflation rate has risen to a level inconsistent with economic efficiency and long-term growth:

Starting from long-run equilibrium, a large tax cut will result in a(n)________ gap in the short-run and ________ inflation and ________ output in the long-run.

For a given level of inflation, if a rise in the stock market makes consumers more willing to spend, known as the wealth effect, then the ________ shifts ________.

Starting from long-run equilibrium, an increase in autonomous investment results in ________ output in the short run and ________ output in the long run.

Refer to the given figure. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as:

For a given level of inflation, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ________ shifts ________.

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n)________ gap and inflation will ________.

The short-run aggregate supply line is:

Aggregate supply shocks are:

Refer to the accompanying figure. Starting from long-run equilibrium at point C, a tax cut that increases aggregate demand from AD to AD¹ will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.

The aggregate demand curve shifts to the left when the Fed:

When an expansionary gap exists, actual output ________ potential output and the rate of inflation will tend to ________.

Refer to the accompanying figure. Starting from long-run equilibrium at point C, an adverse inflation shock that increases inflation from π to π¹ will lead to a short-run equilibrium at point ________ creating ________ gap.

If policymakers attempt to offset an adverse inflation shock with monetary ________, the resulting long-run equilibrium will be at ________ inflation rate compared to allowing the self-correcting mechanism return the economy to potential output.

A substantial reduction in the rate of inflation is called:

High levels of inflation ________ the real value of money and, hence, ________ short-run equilibrium output.