Exam 15: 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, then we would expect that in the short-run,

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

Which of the following shifts both short-run and long-run aggregate supply left?

A decrease in the expected price level shifts

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Which of the following did not happen during the onset of the Great Depression?

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run,

Other things the same, if the long-run aggregate supply curve shifts right, prices

Tax cuts shift aggregate demand

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has

If there are floods or droughts or a decrease in the availability of raw materials

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level

The aggregate-demand curve

The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.

Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have

In 2001, the United States was in recession. Which of the following things would you not expect to have happened?

Which of the following can explain the upward slope of the short-run aggregate supply curve?