Exam 7: Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy

If autonomous spending does not respond to changes in the interest rate, the resulting ________ IS curve implies that an economy ________ self-correct.

Figure 7-3 -Employing Figure above with equilibrium initially at E0, assume the nominal money supply eased. If prices are flexible, in the short run ________ and in the long run ________.

An increase in the price level will

The demand for labor is determined by

With a fixed nominal wage the SAS curve is positively sloped because

Consider an initial IS-LM equilibrium point which corresponds to a point labeled "A" on the current AD curve. -Refer to the information above. If the nominal money supply falls by 4 percent with no change in the price level, the resulting IS-LM equilibrium corresponds to a point in the AD diagram

In the case of monetary impotence without a horizontal LM curve, a rise in government expenditures

According to Pigou, the Keynesian dilemma of a vertical AD curve is not a dilemma at all because the demand for commodities depends directly on the level of real balances. Thus, the

The combination of the Keynes, Pigou, expectations, and redistribution effects results in an economy that self-corrects given a sufficiently low price level, when the four effects give rise to an AD curve that is

Figure 7-2 -In the figure above, the shifts F0 to F1 and N0d to N1d may have occurred in an economy subjected to a

The SAS curve will be steeper the

That the LAS curve is vertical means that

A fall in the price level causes changes in the IS-LM diagram that can also be recorded as a

Keynes discussed the possibility of a horizontal LM curve, which causes a ________, thus the possibility of ________.

The result of raising government spending in the IS-LM model can be translated to the "quantity equation" as equal-proportional changes in

Figure 7-5 -In the figure above, from an initial long-run equilibrium the net tax rate rises with no initial change in the nominal wage. We would show this as a movement from points

The LM curve will shift to the

Suppose that the administration proposes to follow a contractionary fiscal policy. This would cause the

If falling prices cause an expectation of even lower prices in the future, this argues for a relatively ________ AD curve, thus ________ the Pigou effect.

When the price firm's receive for their output rises, the resulting ________ in the real wage rate leads firms to profitably employ ________ labor than before, thus ________ the amount of output willingly supplied.