ECON 203 Lecture Notes - Lecture 11: Stock Market, Xm Satellite Radio, Output Gap

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lavendercoyote183

27 Mar 2017

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V short-run versus long-run macroeconomics v aggregate demand (ad) curve. Fixed labour force, capital stock and technology. Changes in output are due to changes in employment and capital utilization: long-run: Production factors and factor prices may change. Changes in output are due to changes in production factors. Ad: relationship between the demand for goods and services and the price level. Ad is c + i + g + x - m. Ad is downward sloping due to three reasons: the wealth effect, interest rate effect and substitution effect: interest rate effect. I financing cost expenditure y. Nx = x - m expenditure y. P real value of holding money ( It shows changes in expenditure caused by changes in price. Assumes all determinants of expenditure except price are constant. Changes in p cause movement along the ad curve. Factors other than p that affect expenditure. Ad = c + i + g + x m.

Related Questions

A) Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = $1.0. The aggregate demand curve is Y = 2(M/P) and M = 1,500.

i) If the economy is initially in long-run equilibrium, what are the values of P and Y?

ii) What is the velocity of money in this economy?

iii) If M increases to 2,000, what are the new short-run values of P and Y?

iv) Once the economy adjusts to long-run equilibrium at M = 2,000, what are P and Y?

B) Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = $1.0. The aggregate demand curve is Y = 3(M/P) and M = 1,000.

i) Suppose a supply shock moves the short-run aggregate supply curve to P=$1.5. What are the new short-run P and Y? What will be the new long-run P and Y?

ii) Suppose that immediately after the supply shock the Federal Reserve Bank wanted to hold output at its long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium P and Y?

C) Use the aggregate demand/aggregate supply model to illustrate graphically the impact in the short run and the long run of the following changes. (Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values). Also, state what happens to prices and output in the short run and the long run.

i) The Federal Reserve Bank engages in expansionary monetary policy.

ii) Climate change causes reduced food production.

iii) Labor unions are banned.

lavenderrat653

1) If actual (equilibrium ) real GDP is less than the full-employment, or natural, level of real GDP, then wages and other input prices are expected to:

a. fall and SRAS to shift to the left until long-run equilibrium is achieved.

b. fall and SRAS to shift to the right until long-run equilibrium is achieved.

c. rise and SRAS to shift to the left until long-run equilibrium is achieved.

d. rise and SRAS to shift to the right until long-run equilibrium is achieved.

2) In a self-regulating economy, inflationary gaps are automatically eliminated in the long run by:

a. decreases in wage rates that cause short-run aggregate supply to shift rightward.

b. decreases in wage rates that cause short-run aggregate supply to shift leftward.

c. increases in wage rates that cause short-run aggregate supply to shift rightward.

d. increases in wage rates that cause short-run aggregate supply to shift leftward.

3) Assume the economy is initially in equilibrium at the full-employment level of real GDP. If businesses and consumers become pessimistic regarding future economic conditions, ceteris paribus, the aggregate demand curve will shift to the ________, causing the level of output to ______.

a. left; fall

b. right; fall

c. left; rise

d. right; rise

4) Economists that advocate a macroeconomic policy of laissez-faire:

a. believe the economy is self-regulating only if the government intervenes to move the economy to equilibrium at natural real GDP.

b. believe the economy is self-regulating and will automatically move to equilibrium at natural real GDP in the long run.

c. also advocate central planning and government control of resources.

d. also advocate active government intervention in the economy.

5) Which of the following summarizes the process for closing a recessionary gap if the economy is self-regulating?

a. Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short-run aggregate supply.

b. Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand.

c. Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending, and increases in aggregate demand.

d. Unemployed resources put downward pressure on the price level, which leads to lower costs of production and an increase in short-run aggregate supply.

cyanmallard742

1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

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ECON 203 Lecture Notes - Lecture 11: Stock Market, Xm Satellite Radio, Output Gap

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