MGEA06H3 Lecture Notes - Lecture 7: Exogeny, Aggregate Demand, Business Cycle
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29 Feb 2016
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MGEA06H3 Full Course Notes
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Chapter 12 aggregate demand and aggregate supply (part 2) Use of the as-ad model to analyze economics fluctuations in both short run and long run. Analyze the short-run and long-run effects of a change in exogenous variable. Discuss how stabilization policies can be used to smooth out business cycles. We derive the ad curve by tracing all the combinations y and p such that y = aeplanned(p). ) y where ae0 = ac + ai + g + x0 im0 + mpc tr0 mpc t0 d i. Changes in ae0 will shift the ad curve. Changes in producers" per-unit profit other than output prices (p) will shift the sras curve. Changes in the (long-run) production function will shift the lras curve. The short-run equilibrium refers to the situation in which the ad intersects the sras. The long-run equilibrium refers to the situation in which the short-run equilibrium is on the lras curve.
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Related Questions
a) | In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.
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b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
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c) | Stagflation arises in the context of the AD-AS model when some external factor causes
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d) | If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
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e) | Which of the following will shift the aggregate demand curve to the right?
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f) | Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?
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g) | An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
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h) | The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.
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i) | The aggregate demand curve shows
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j) | Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
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