Exam 14: Aggregate Demand and Aggregate Supply

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?

By how much did the real GDP per person increase during World War II?

This problem compares two economies: Economy A,having a lower elasticity of the short-run aggregate-supply curve,and economy B,with higher elasticity.Draw a graph representing an aggregate-demand curve and two short-run aggregate-supply curves,ASA and ASB,such that ASB is flatter than ASA.Both economies are in long-run equilibrium at the same output and price level.Suppose a sharp decline in the housing prices and a subsequent financial meltdown reduces the aggregate demand by the same amount in both economies.Use the graph to explain the differences in output and price declines in the two economies.What do we learn from this exercise?

Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession.How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?

Why is the aggregate demand curve downward sloping?

What was the main reason for the economic boom of the early 1940s?

What has NOT been suggested as a cause of the Great Depression?

What is NOT included in aggregate demand?

Which statement best describes the effects of an increase in the price level?

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

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage.In the short run,what would we expect to happen?

What were the changes in output in the early 1930s and early 1940s in Canada,respectively?

Scenario 14-2 The economy is in long-run equilibrium.Suddenly,due to corporate scandals,a recession experienced by a major trading partner,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 the Scenario 14-2.How does the new long-run equilibrium differ from the original one?

An unexpected increase in the price level does not shift the aggregate-supply curve,but an expected increase in the price level shifts the aggregate-supply curve to the left.

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,what would we expect will happen in the short run?

What is included in the aggregate demand for goods and services?

Which statement characterizes business cycles?

If the economy is initially in long-run equilibrium,which statement best describes the effects of a shift in aggregate demand?

According to the sticky-wage theory,which statement is consistent with an unexpected fall in the price level?

Use the misperceptions theory to discuss the economic forces that shift the aggregate-supply curve when the expectations about the overall price level change.