Exam 14: Aggregate Demand and Aggregate Supply

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

What does a fall in the economy's overall level of prices tend to do?

When the government spends more, what is the initial effect?

Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. If the economy starts at A and there is a fall in aggregate demand, what happens to the economy in the long run?

Which of the following best describes what happens when the price level falls?

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, what would we expect to happen in the short-run?

How does the aggregate demand and aggregate supply model reflect a rise in production costs?

Which of the following typically rises during a recession?

Which of the following best explains an increase in consumer spending?

Which of the following would cause prices to fall and output to rise in the short run?

Assuming that a is positive, how are theories of short-run aggregate supply expressed mathematically?

Suppose the economy is in long-run equilibrium. Premier Aviary succeeds in getting a major new highway project for his province. At the same time, Premier Green succeeds in getting major new restrictions on logging enacted for her province. In the short run, what would we expect to happen?

In which of the following situations would the long-run aggregate supply curve shift right?

Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time. -Refer to Scenario 14-2. In the short-run, which of the following are consistent with the aggregate demand and aggregate supply theory?

Scenario 14-1. The economy is in long-run equilibrium. Suddenly, due to improved international relations and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time. -Refer to Scenario 14-1. In the long-run, how does the change in price expectations created by optimism change the aggregate demand and aggregate supply diagram?

What happens when the price level rises?

If the government increased the money supply in response to a decrease in aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Which of the following best describes what happens when the price level rises?

What are the effects of a decrease in the price level?

Which of the following could create an increase in the price level and a reduction in real GDP?