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. |
ECON CH. 12
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