# ECON CH. 12

Total word count: 409
Pages: 1

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 The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate: quantity of output demanded by households, businesses, the government, and the rest of the world. The aggregate demand curve slopes: downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases. (Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases: a downward movement along the AD1 will take place, reflecting a decrease in the price level. Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a: shift to the left. Aggregate demand will shift to the RIGHT if: government purchases increase. (Figure: Shift of the Aggregate Demand Curve) Look at the figure Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 could have resulted from a(n): increase in the total quantity of consumer goods and services demanded. The aggregate supply curve shows the relationship between the aggregate price level and the aggregate: output supplied. When the price level decreases, firms in imperfectly competitive markets will: decrease output and decrease the price. The short-run aggregate supply curve illustrates: the positive relationship between the aggregate price level and aggregate output supplied. A change in _____ would cause a shift in the short-run aggregate supply curve. commodity prices The short-run aggregate supply curve will shift to the: left if nominal wages increase. Potential output: is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible. Which of the following is TRUE with respect to short-run and long-run aggregate supply? The economy can be on both curves simultaneously. A positive demand shock leads to: higher prices and higher employment. An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run. an increase; an increase In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____. rise; remain stable (Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates: a short-run equilibrium. Suppose that an economy is in an inflationary gap in the short run. In the long run: the economy’s self-correcting mechanism will restore GDP to its potential level.

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