ECON1102 Final: Week 8 Macro

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taupemarten919

13 Nov 2018

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The ad-as model examines how short-run fluctuations in real gdp and the price level occur and how they affect total output. The ad curve is built from the demand expenditures side of the whole economy (c+i+g+nx) and shows ad associated with different price levels: whereas, market demand curve shows mb/the willingness-to-pay for a given good at various prices. The as curve shows how changes in the price level changes the amount producers in aggregate will offer to the whole economy in the short-run: whereas, a market supply curve shows mc for producers in a particular market. Changes in the price level are depicted as movements up or down a stationary aggregate demand curve. So the relationships of c, i, g and nx to ad given changes in price level are all inverse. Long-run aggregate supply (lras) curve - a curve that shows the relationship in the long-run between the price level and the quantity of real gdp supplied.

Related Questions

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.

	decreases; decreases; falls short of
	increases; decreases; equals
	decreases; increases; exceeds
	decreases; increases; equals
	increases; decreases; exceeds

The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that

	Y* is independent of the price level and that actual output Y > Y* in the long run
	Y* equals actual output (Y) in the long run
	Y* is independent of the price level and that actual output Y = Y* in the long run
	Y* is independent of the price level
	Y* is independent of the price level and that actual output Y < Y* in the long run

Stagflation arises in the context of the AD-AS model when some external factor causes

	the LRAS curve to shift to the right
	the AD curve to shift leftwards
	the SRAS curve to shift downwards
	the SRAS curve to shift upwards
	the AD curve to shift rightwards

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.

	either an increase or a decrease
	no change
	an increase
	a decrease
	an initial increase, and then a decrease

Which of the following will shift the aggregate demand curve to the right?

	Consumers become pessimistic about the future
	A new technology is developed that will increase profits
	Income taxes are raised
	Foreign economies fall into recession, reducing their demand for domestic exports
	The government reduces purchases to balance the budget

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?

	A leftward shift the AD curve
	There will be no movement of the AD curve
	A movement down the AD curve
	A movement up the AD curve
	A rightward of the shift the AD curve

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

	100
	110
	120
	90
	105

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.

	recessionary; recessionary
	recessionary; expansionary
	expansionary; expansionary
	output; output
	expansionary; recessionary

The aggregate demand curve shows

	the amount of planned aggregate expenditure (and output) at the current price level
	the amount of planned aggregate expenditure (and output) at an average price level
	the amount of planned aggregate expenditure (and output) at a constant price level
	the amount of planned aggregate expenditure (and output) at various price levels
	the amount of planned aggregate expenditure (and output) at last year's price level

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 __________.

	an increase; left; Y = Y*
	a decrease; right; Y > Y*
	an increase; right; Y = Y*
	a decrease; left; Y > Y*
	no change; left; Y = Y*

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.

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS-AD model, this change should have shifted the AD curve to the left. A cut in government spending reduces economic activity and shifts the AD curve to the left.

limehyena147

Under the liquidity trap, money demand becomes very flat at low-interest rates. For this problem, consider the money demand function to be horizontal at a zero nominal interest rate.

A. Draw the LM curve. How does the slope of the curve change when the interest rate rises above zero?

B.Draw the IS curve. Does the shape of the curve change (necessarily) when the interest rate falls below zero?

C.Draw the AD curve? (Hint: From the IS-LM diagram, think about the price level at which the interest rate is zero. How does the AD curve look above this price level? How does the AD curve look below this price level?)

D.Draw the AD and AS curves and assume that equilibrium is at a point where output is below the natural level of output and where the interest rate is zero. Suppose the central bank increases the money supply. What will be the effects on output in the short run and the medium run? Explain in words.

magentasalmon996

ECON1102 Final: Week 8 Macro

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