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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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