Economics 1022A/B Chapter Notes - Chapter 28: Real Wages, Main Source, Real Business-Cycle Theory
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Refer to the table given below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $15 billion at each price level.
Real Output Demanded (Original) |
Price |
Real Output |
$500 |
112 |
$515 |
505 |
106 |
512 |
510 |
100 |
510 |
515 |
94 |
507 |
520 |
88 |
500 |
a.) By what percentage will the price level increase? _______ percent
b.) Will this inflation be demand-pull inflation or will it be cost-push inflation? (Click to select) Cost-push inflation or Demand-pull inflation
c.) If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? $ _______ billion
d.) If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? (Click to select) (Increase or Decrease)
1. | In the money market, money supply is determined by the central bank, such as the Fed in the U.S. Because of this, money supply curve is usually vertical in the short run, while the money demand curve is downward sloping. The quantity demanded of money has an inverse relationship with the interest rate, but a direct relationship with both the price level and real GDP. Therefore, when the general price level increases, what will most likely happen? | ||||||||||||||||
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3. | Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is in the Keynesian range of the aggregate supply curve, then | ||||||||||||||||
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5. | Which of the following will shift the aggregate demand curve to the left? | ||||||||||||||||
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6. | Which of the following will shift the aggregate supply curve to the left? | ||||||||||||||||
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8. | There are also two kinds of deflation, the demand-pull deflation and cost-push deflation. Then which of the following is most likely to be true? | ||||||||||||||||
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9. | The short-run aggregate supply curve (SRAS) can be written as follows: Y = Yf + b (p - pe), where Y = real GDP, Yf = full-employment real GDP, p = price level, pe = expected price level, and b is a positive coefficient. The SRAS can be re-written as p = pe - (1/b)(Yf) + (1/b)(Y). Then which of the following is true? | ||||||||||||||||
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