Question 1

List three events that would shift the short-run aggregate supply curve leftward.

Accepted Answer

Some possibilities are a rise in the prices of domestic resources,an increase in wages beyond any rise in productivity,an increase in the prices of imported resources,declining rate of productivity without corresponding wage concessions,rising business taxes,reduction in research and development efforts,and more government regulation which adds to production costs.

Question 2

Describe the change in short-run aggregate supply that should result from each of the following changes in determinants.Assume that nothing else is changing besides the identified change.(Use "Decrease" or "Increase.")
(a)A rise in the average price of inputs;
(b)An increase in worker productivity;
(c)Government antipollution regulations become stricter;
(d)A new subsidy program is enacted for new business investment in productive equipment;
(e)Energy prices decline.

Accepted Answer

(a)Decrease;
(b)Increase;
(c)Decrease (unless the increase in antipollution device production outweighs the decline in production caused by the increased cost of the regulations);
(d)Increase;
(e)Increase

Question 3

How is the immediate short-run aggregate supply curve sloped? Explain.

Accepted Answer

The immediate short-run aggregate supply curve is drawn as a horizontal line at the prevailing price level.Even though the economy faces demand and supply shocks,prices are often stuck for a while.

Question 4

Why does aggregate demand shift outward by a greater amount than the initial change in spending?

Accepted Answer

The basic reason is because of the multi

Question 5

What are five reasons for the downward price-level inflexibility,especially as it pertains to wages and prices?

Accepted Answer

First,wage contracts will fix wages for

Question 6

Explain the relationship between the aggregate expenditures model in graph (A)below and the aggregate demand model in graph (B)below where aggregate demand is shifting.

Accepted Answer

@#IMG-DLM& In (A)we assume that some determinant o

Question 7

In the below diagram assume that the aggregate demand curve shifts from AD1 in year 1 to AD2 in year 2,only to fall back to AD1 in year 3.

Accepted Answer

@#IMG-DLM& 
(a)Explain what will happen to the equ

Question 8

How is the long-run aggregate supply curve sloped? Explain.

Accepted Answer

The long-run aggregate supply curve is f

Question 9

Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.

Accepted Answer

@#IMG-DLM& 
(a)What is the level of productivity i

Question 10

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

Accepted Answer

@#IMG-DLM& 
(a)What will be the equilibrium price

Question 11

What is the effect on the multiplier when an increase in aggregate demand also causes the price level to rise?

Accepted Answer

The multiplier effect is weakened with p

Question 12

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

Accepted Answer

@#IMG-DLM& 
(a)What will be the equilibrium price

Question 13

Using the aggregate demand-aggregate supply (short-run)model,explain the impact of the public's expectations of severe inflation on real GDP and the price level.

Accepted Answer

Increased expectations of severe inflati

Question 14

List the three major determinants that can cause a shift in the short-run aggregate supply.

Accepted Answer

The determinants of short-run aggregate

Question 15

List four government tax or spending policy options that would shift the short-run aggregate supply curve rightward.

Accepted Answer

Some possible answers are tax cuts or re

Question 16

Would increased downward price flexibility lead to less severe or more severe recessions? Explain.

Accepted Answer

If prices were more flexible downward,a

Question 17

Economists think of three different aggregate supply curves based upon the time frame of observation.Briefly describe each.

Accepted Answer

The aggregate supply curve describes the

Question 18

Some economists argue that it is easier to resolve demand-pull inflation than cost-push inflation.Use the aggregate demand-aggregate supply (short-run)model to explain this assertion.

Accepted Answer

To address demand-pull inflation,the gov

Question 19

What is the aggregate demand curve? What is the characteristic of its slope?

Accepted Answer

The aggregate demand curve shows the rel

Question 20

What determines the equilibrium price level and the level of real GDP in the aggregate demand-aggregate supply (short-run)model?

Accepted Answer

The interaction of short-runaggregate su

List three events that would shift the short-run aggregate supply curve leftward.

How is the immediate short-run aggregate supply curve sloped? Explain.

Why does aggregate demand shift outward by a greater amount than the initial change in spending?

What are five reasons for the downward price-level inflexibility,especially as it pertains to wages and prices?

Explain the relationship between the aggregate expenditures model in graph (A)below and the aggregate demand model in graph (B)below where aggregate demand is shifting.

In the below diagram assume that the aggregate demand curve shifts from AD₁ in year 1 to AD₂ in year 2,only to fall back to AD₁ in year 3.

How is the long-run aggregate supply curve sloped? Explain.

Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

What is the effect on the multiplier when an increase in aggregate demand also causes the price level to rise?

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

Using the aggregate demand-aggregate supply (short-run)model,explain the impact of the public's expectations of severe inflation on real GDP and the price level.

List the three major determinants that can cause a shift in the short-run aggregate supply.

List four government tax or spending policy options that would shift the short-run aggregate supply curve rightward.

Would increased downward price flexibility lead to less severe or more severe recessions? Explain.

Economists think of three different aggregate supply curves based upon the time frame of observation.Briefly describe each.

Some economists argue that it is easier to resolve demand-pull inflation than cost-push inflation.Use the aggregate demand-aggregate supply (short-run)model to explain this assertion.

What is the aggregate demand curve? What is the characteristic of its slope?

What determines the equilibrium price level and the level of real GDP in the aggregate demand-aggregate supply (short-run)model?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

An Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

Exam 12: Aggregate Demand and Aggregate Supply

List three events that would shift the short-run aggregate supply curve leftward.

How is the immediate short-run aggregate supply curve sloped? Explain.

Why does aggregate demand shift outward by a greater amount than the initial change in spending?

What are five reasons for the downward price-level inflexibility,especially as it pertains to wages and prices?

Explain the relationship between the aggregate expenditures model in graph (A)below and the aggregate demand model in graph (B)below where aggregate demand is shifting.

In the below diagram assume that the aggregate demand curve shifts from AD1 in year 1 to AD2 in year 2,only to fall back to AD1 in year 3.

How is the long-run aggregate supply curve sloped? Explain.

Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

What is the effect on the multiplier when an increase in aggregate demand also causes the price level to rise?

Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:

Using the aggregate demand-aggregate supply (short-run)model,explain the impact of the public's expectations of severe inflation on real GDP and the price level.

List the three major determinants that can cause a shift in the short-run aggregate supply.

List four government tax or spending policy options that would shift the short-run aggregate supply curve rightward.

Would increased downward price flexibility lead to less severe or more severe recessions? Explain.

Economists think of three different aggregate supply curves based upon the time frame of observation.Briefly describe each.

Some economists argue that it is easier to resolve demand-pull inflation than cost-push inflation.Use the aggregate demand-aggregate supply (short-run)model to explain this assertion.

What is the aggregate demand curve? What is the characteristic of its slope?

What determines the equilibrium price level and the level of real GDP in the aggregate demand-aggregate supply (short-run)model?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

An Introduction to Macroeconomics

Measuring the Economys Output

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, Surpluses, and Debt

Money, Banking, and Money Creation

Interest Rates and Monetary Policy

Long-Run Macroeconomic Adjustments

International Trade

Exchange Rates and the Balance of Payments

Filters

In the below diagram assume that the aggregate demand curve shifts from AD₁ in year 1 to AD₂ in year 2,only to fall back to AD₁ in year 3.