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ECON 1010 Study Guide - Aggregate Demand, Aggregate Supply, Gdp Deflator

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apricotseal471
13 Jun 2013
School
York University
Department
Economics
Course
ECON 1010
Professor
Steven Edwards

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Document Summary

Chapter twenty six aggregate supply and demand. This chapter explains the aggregate supply aggregate demand model or as-ad model. The model provides a framework for understanding the forces that make our economy expand, that bring inflation, and that cause business cycle fluctuations. The as-ad model also provides a framework within which we can see the range of views of macroeconomists in different schools of thought. The purpose of the asad model is to explain how real gdp and the price level are determined and how they interact. Asad model is a model of imaginary market for the total of all the final goods and services that make up real gdp. The quantity in this market is real gdp and the price is the price level measured by gdp deflator. One thing asad shares with the competitive market model is that both distinguish between supply and the quantity supplied.

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Related Questions

A. A decrease in aggregate supply can result in:

  1. a recession
  2. cost-push inflation
  3. demand-pull inflation
  4. unemployment 

B. In the short run (intermediate-range) of the aggregate supply curve, higher aggregate demand will increase

  1. the price level but reduce real GDP.
  2. real GDP without raising the price level
  3. the price level without affecting real GDP
  4. both the price level and real GDP

C. Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

  1. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services
  2. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services
  3. As prices fall, the government will have to reduce taxes, which will lead to an increase in the number of goods and services purchased
  4. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the number of goods and services purchased

Suppose that the equation for the aggregate demand is y= 7,000 + 2,400/p. in this real business cycle model, the equation for natural real GDP is Yn = 9,000 + technology shock. The technology shocks for periods 1-6 are given below.

Period: 1 2 3 4 5 6

Technology shock: -400 -80 0 1,000 400 0

A. Calculate the points on the aggregate demand curve when the price level equals 0.75, 0.80, 1.00, 1.20, 1.25, and 1.50.

B. Compute the price level and real GDP in periods 1-6. Describe the cyclical behavior of real GDP and the price level in this real business cycle model.

Participate in a discussion with your classmates regarding how fiscal policies affect our lives. As previously covered in Chapter 13, we learned that the real business cycle results from fluctuations in the pace of growth of labor productivity and potential GDP. Thus, utilizing the knowledge that you have accumulated during our course, and by reading or watching the current news, determine the macroeconomic policy issues that face our economy today. Specifically, discuss whether we’re facing business cycle problems, and whether our fiscal policies are influencing aggregate supply, aggregate demand, or both; and the impacts these policies may have on potential GDP.