Exam 8: Skating to Where the Puck Is Going: Aggregate Supply and Aggregate Demand

The "Yes - Markets Self-Adjust" camp argues that in a recessionary gap, all of these market adjustments will happen except,

When interest rates rise, average prices fall and unemployment increases.

The "Yes - Markets Self-Adjust" camp argues that

Unemployment is represented by points on the macro production possibilities frontier.

Full employment is represented by points on the macro production possibilities frontier.

The "Yes - Markets Self-Adjust" camp argues that a positive demand shock results in

A rise in the price level decreases aggregate quantity demanded.

A positive supply shock from falling input prices shifts

The language of output gaps - recessionary gaps and inflationary gaps -

Aggregate demand increases when government increases taxes.

According to the law of short-run aggregate supply, as the price level rises, short-run aggregate

A recessionary gap most likely comes from

Falling input prices increase aggregate quantity supplied.

There is a positive demand shock when

For the "Yes - Markets Self-Adjust" camp, interest rates are more important than expectations for business investment decisions.

In short-run macroeconomic equilibrium

Figure 6.3.1 -Look at the macro production possibilities frontier in Figure 6.3.1. Which point(s) represent fully employed inputs?

The long run is a period of time when

In short-run macroeconomic equilibrium, aggregate quantity demanded equals aggregate quantity supplied.

Supply shocks cause unemployment and inflation to move in the same direction.