Exam 20: Aggregate Demand and Aggregate Supply

Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. -Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis?

The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

In the mid-1970s the price of oil rose dramatically. This

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Other things the same, if the U.S. price level falls, then

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at A and moves to D in the short run, the economy

From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

During the 2008-2009 recession real GDP fell by about

The aggregate demand and aggregate supply model implies monetary neutrality

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. If the economy starts at C, an increase in the money supply moves the economy

A decrease in the availability of an important major resource such as oil shifts

Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.

If there are sticky wages, and the price level is greater than what was expected, then

Which of the following will reduce the price level and real output in the short run?

Other things the same, when the price level falls, interest rates

When interest rates fall

Which part of real GDP fluctuates most over the course of the business cycle?

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

During World War II government expenditures increased almost five-fold and output almost doubled.