Exam 9: Introduction to Economic Fluctuations

Assume that the economy begins in long-run equilibrium.Then the Bank of Canada reduces the money supply.In the short run ______,whereas in the long run prices ______ and output returns to its original level.

The long-run and short-run aggregate supply curves reflect fundamental differences between long-run and short-run macroeconomic analysis.a.Graphically illustrate the long-run and short-run aggregate supply curves.Be sure to label the axes.b.What determines the level of output in the long run versus the short run? c.How do prices behave differently in the long run and the short run?

Use the following to answer questions : Exhibit: Shift in Aggregate Demand -(Exhibit: Shift in Aggregate Demand)Assume that the economy is initially at point A with aggregate demand given by AD₂.A shift in the aggregate demand curve to AD₀ could be the result of either a(n)______ in the money supply or a(n)______ in velocity.

Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model in:

Suppose that droughts in the Prairies and floods in Ontario substantially reduce food production in Canada.Use the aggregate demand-aggregate supply model to illustrate graphically the impact in the short run and the long run of this adverse supply shock.Be sure to label: i.the axes ii.the curves iii.the initial equilibrium values iv.the direction the curves shift v.the short-run equilibrium values vi.the long-run equilibrium values.State in words what happens to prices and output in the short run and the long run.

The relationship between the quantity of output demanded and the aggregate price level is called: