Exam 14: Aggregate Demand and Aggregate Supply

Consider the following equation, where a is a positive number: quantity of output supplied = natural rate of output + a (actual price level - expected price level). What does this equation represent?

What are the effects of a decrease in Canadian interest rates?

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp decline in the stock market, a tax cut, an increase in the money supply, and a decline in the value of the dollar. In the short run, what would we expect to happen?

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

Discuss what economists believe is different about the long and short run.

Other things the same, a decrease in the price level makes the interest rate increase, which leads to an appreciation of the dollar in the foreign-currency exchange.

Which of the following best describes the aggregate demand and aggregate supply model?

Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

What did The General Theory, a 1936 book by John Maynard Keynes, attempt to explain?

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. Initially, which curve shifts in which direction?

Which of the following is consistent with an increase in the price level?

Which of the following would cause stagflation?

Which of the following characterizes the long-run aggregate supply curve?

Which of the following shifts aggregate demand to the left?

An aggregate supply (AS) curve is described by the equation Y = Y_LR + a * (P - P_EXP), where Y is current output, Y_LR is the long run level of output, a is a positive constant, P is the current price level, and P_EXP is the expected price level. Suppose Y_LR = 50, a = 1, and P_EXP = 40. a.Draw the long run aggregate supply curve in an AD - AS (aggregate demand - aggregate supply) diagram. b.Using the AS equation, find the output corresponding to price levels P = 40 and P = 80 and place the 2 points on your diagram. Draw the short run AS curve that passes through the two points. c.Identify the expected price level on your graph. d.Suppose the expected price level decreases to P'_EXP = 30. For current price levels P = 40 and P = 60, recalculate the output levels using the AS formula. Draw the new AS curve and identify the new expected price level.

Which of the following happens during recessions?

How is the effect of an increase in the price level represented?

A decrease in the money supply causes the interest rate to rise so that investment rises.

What happens to prices and output when the long-run aggregate supply curve shifts right?

Which of the following shifts the short-run aggregate supply right?