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ECN 203 Study Guide - Quiz Guide: Autonomous Consumption, Aggregate Supply, Aggregate Demand

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taupefrog595
16 Nov 2016
School
Syracuse University
Department
Economics
Course
ECN 203
Professor
Ashby

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Document Summary

Aggregate demand (ad): represents the demand side of the economy and shows the relationship between p and y demanded. Real gdp (y) is the value of goods and services produced by the economy in a given period of time. Price level (p) is an overall measure of prices of goods and services in the economy. Ad is downward sloping because the nominal value of money is fixed, but the real value is dependent upon the price level. This is because for a given amount of money, a lower price level provides more purchasing power per unit of currency. Ae is measured in nominal (current) dollars, thus ad is downward sloping. (as overall prices go down (p falls), the true value can go up because of inflation. Aggregate expenditure (ae): total planned spending by four sectors (households, firms, government, and foreign) 6 components of ae (ae = c + i + g - t + x - m)

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Related Questions

What is aggregate demand?

  1. What is Aggregate Demand?

    1. Aggregate Demand refers to the total expenditure on domestic goods and services within an economy. The Aggregate Demand (AD) thus represents the relationship between the total quantity of output demanded in the economy and the overall price level. Like the basic demand curve, the AD curve also slopes downward to reflect the inverse relationship between aggregate price and aggregate quantity demanded.

Suppose that the Australian economy is at long run equilibrium, and the Australian government announces its decision to decrease spending on infrastructure.

Discuss the short-run effects of a decrease in spending on aggregate espenditure (AE) and aggregate demand (AD). in your discussion, explain the process that moves the economy to its new equilibrium output. That is, explain what would happen to:

1. aggregate planned expenditure

2. firms inventories and production

3. disposable income and consumption expenditure

4. aggregate demand and supply

5. real GDP and price level

Use the AE and AD Graph for your graphical analysis to support your explanation.

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.