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ECON 201 Lecture Notes - Lecture 18: Aggregate Supply, Equilibrium Point, Potential Output

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Verified Note
sapphiretiger55
26 Oct 2018
School
University of Maryland
Department
Economics
Course
ECON 201
Professor
John Neri

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17

ECON 201 Lecture Notes - Lecture 17: Nominal Interest Rate, Financial Innovation, Real Interest Rate

18

ECON 201 Lecture Notes - Lecture 18: Aggregate Supply, Equilibrium Point, Potential Output

19

ECON 201 Lecture Notes - Lecture 19: Aggregate Supply, Aggregate Demand, Potential Output

Document Summary

Econ201 lecture 18: aggregate supply and demand (part 2) The figure shows sr equilibrium where ad=sas (short run aggregate supply) (neri 1) At price level 110, equilibrium rgdp is 16 (neri 1) Multiplier and price level in the short run. In chapter 11, we derived the multiplier assuming p is fixed. Now we allow p to vary in the short run. For example, we know an increase in investment shifts the ae curve upward and shifts the ad curve rightward. With no change in the price level, real gdp would be 18 trillion at point b (neri 2) But we can see the price level rises. As the price level rises, real gdp increases along the sas curve to . 3 trillion. The multiplier in the short run is smaller when the price level is fixed. Multiplier and price level in the long run. At point c in b, there is a 1. 3 trillion dollar gap (neri 3)

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Related Questions

Evaluate whether each of the following statements is true or false, and explain your answer:

a. The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

b. The long-run aggregate supply curve can never shift.

c. either a decrease in the nominal money supply by the federal reserve, all else held constant or an increase in the price level, all else held constant, will shift the aggregate demand curve to the left.

d. the Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

e. Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.


Show that, starting from a long-run equilibrium, an increase in government expenditures increases output in the short-run but not in the long-run.

Part 1

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale.

a.The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

b.The long-run aggregate supply curve can never shift.

c.Either a decrease in the nominal money supply by the Federal Reserve, all else held constant or an increase in the price level, all else held constant, will shift the aggregate demand (AD) curve to the left.

d.The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

e.Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

Part 2

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale, using graphs to support your answer. You can create graphs by hand and take pictures and upload them with your answers, or you may use Word or Excel, and upload the file created by these software packages.

a.If the real money demand is greater than the real money supply, interest rates must rise to reach equilibrium in the money market as institutions sell bonds to obtain more money.

b.The federal government's control of the money supply, which influences interest rates, is the primary tool that policymakers use to impact the macroeconomy.

c.A decrease in the reserve requirement decreases the money supply because banks have fewer reserves.

d.The real money demand curve shows how households and businesses change their spending in response to changes in the interest rate.

e.Both an increase in the nominal money supply by the Federal Reserve and an increase in the price level will cause the real money supply curve to shift to the right.