ECON 102 Lecture Notes - Lecture 12: Aggregate Supply, Aggregate Demand, Interest Rate
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Document Summary
In macroeconomics, aggregate demand (ad) is the total demand for final goods and services in the economy (y) at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. The total demand of all potential buyers of a commodity or service. Includes all individuals and organizations that have the ability, willingness, and authority to purchase such products. The total demand for a country"s output, including demands for consumption, investment, government purchases, and net exports. Y = c + i + g + x m. Aggregate demand is the demand for the gross domestic product (gdp) of a country, and is represented by this formula: Aggregate demand (ad) = c + i + g (x-m) c = consumers" expenditures on goods and services. I = investment spending by companies on capital goods. Government expenditures on publicly provided goods and services.
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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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6. To study the macroeconomy we must combined prices and quantities generated in single-product markets into broad aggregates.
| a) | True |
| b) | False |
7. An economist who favored expanded government would recommend:
| a) | tax cuts during recession and tax increases during inflation |
| b) | tax increases during recession and tax cuts during inflation. |
| c) | tax cuts during both recession and inflation |
| d) | increases in government spending during a recession and tax increases during inflation. |
| e) | tax cuts during recessions and reduction in government spending during inflation. |
8. If Government tax revenue exceeds Government spending the result of the budget is
| a) | an increase in investment |
| b) | a shortage |
| c) | an increase in the deficit |
| d) | a decrease in savings |
| e) | a surplus |
9. Which of the following statements is true?
| a) | In the US economy, the net export sector is positive. |
| b) | Aggregate demand is the sum of total output produced by all firms in the US. |
| c) | The aggregate supply curve is vertical if the price level is equal to the per-unit cost of production |
| d) | Aggregate production sums up the four major components C+I+G+Xn in the US economy. |
| e) | Government spending is the largest component of aggregate demand. |
10. Which of the following statements is true?
| a) When unemployment is rising then real GDP is rising. | |
| b) | The required reserve ratio is a tool used by the government to control the demand for money. |
| c) | The four components of aggregate supply are the same as aggregate demand. |
| d) | when an imported resource such as oil has decreased that is an increase in aggregate demand. |
| e) | The four components of aggregate demand---Households, Business, Government, and Net Exports. |
