Exam 9: Aggregate Demand and Aggregate Supply Analysis

One factor that brought on the recession of 2008-2009 was the financial crisis in 2008.

Figure 9.6 Alt text for Figure 9.6: In figure 9.6, a graph depicting short-run equilibrium and long-run equilibrium. Long description for Figure 9.6: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).5 lines are shown; SRAS1, SRAS2, AD1, AD2, and LRAS.Line SRAS1 begins near the bottom left and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as AD1, but is plotted to the right.Line SRAS1 intersects line AD1 at point C, more than half way along both lines.Line SRAS1 intersects line AD2 at point B, approximately 3 quarters of the way along both lines.Line SRAS2 intersects line AD1 at point D, approximately 3 quarters of the way along both lines.Line SRAS2 intersects the line AD2 at point A, more than half way along both lines.Line LRAS is perpendicular to the x-axis, passing through points A and C and intersecting all 4 lines. -Refer to Figure 9.6.Suppose the economy is at point C.If investment spending decreases in the economy, where will the eventual long-run equilibrium be?

The ________ curve is vertical.

The short-run aggregate supply curve has a(n)________ slope because as prices of ________ rise, prices of ________ rise more slowly.

When the price level rises from 110 to 115, the aggregate level of GDP supplied rises from $80 billion to $120 billion.This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.

________ of unemployment during ________ make it easier for workers to ________ wages.

When potential GDP increases, long-run aggregate supply also increases.

Deflation will

In the long run,

Figure 9.1 Alt text for Figure 9.1: In figure 9.1, a graph comparing real GDP and price level. Long description for Figure 9.1: The x-axis is labelled, real GDP, and the y-axis is labelled, price level, with 0 at the vertex.Line AD1 begins in the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1 but is plotted to the right.Points A and B are plotted along line AD1.Point A is a little less than half way along the left side of the line, and point B is little more than half way on the right side of the line. -Refer to Figure 9.1.Ceteris paribus, an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from

Figure 9.8 Alt text for Figure 9.8: In figure 9.8, a graph comparing real GDP and price level. Long description for Figure 9.8: The x-axis is labelled, real GDP (trillions of dollars), with values 1.60, 1.64, 1.65 marked.The y-axis is labelled, price level (CPI), with values 125 and 127 marked.6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.The area between lines SRAS1 and SRAS2 is indicated by a right pointing arrow.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.The area between lines AD1 and AD2 is indicated by a right pointing arrow.Line LRAS1 is perpendicular to the x-axis, and begins from the value 1.60.Line LRAS2 is perpendicular to the x-axis, and begins from the value 1.65.The area between lines LRAS1 and LRAS2 is indicated by a right pointing arrow.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.60, 125).Lines AD2 and SRAS2 intersect at point B (1.64, 127).Points A and B are connected to their respective coordinates on the x-axis and y-axis with dotted lines.Line LRAS2 intersects lines SRAS1 and SRAS2 near the right end of these lines.Similarly, line LRAS2 intersects lines AD1 and AD2 near the right end of these lines. -Refer to Figure 9.8.In the figure above, AD₁, LRAS₁, and SRAS₁ denote AD, LRAS ,and SRAS in year 1, while AD₂, LRAS₂, and SRAS₂ denote AD, LRAS, and SRAS in year 2.Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

Many economists believe that increases in government spending were necessary to help the Canadian economy recover from the recession of 2008-2009.Neils Veldhuis and Charles Lammam, on the other hand, believe that the recovery was due to

A negative supply shock in the short run causes

Which of the following is considered a negative supply shock?

Workers expect inflation to fall from 4% to 1% next year.As a result, this should

If aggregate demand just increased, which of the following may have caused the increase?

The federal government lowered income taxes for individuals in 2009.Explain how lower income taxes affect the aggregate demand curve.

The recession of 2008-2009 made many firms pessimistic about the future profitability of investments.How does this increased pessimism affect the aggregate demand curve?

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off