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ECON 1BB3 Chapter Notes - Chapter 5: Menu Cost, Exchange Rate, Aggregate Supply

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limedonkey197
22 Jun 2016
School
McMaster University
Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes
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ECON 1BB3 Full Course Notes
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Document Summary

Chapter 14: short run economic fluctuations: aggregate demand and aggregate. Model of aggregate demand and aggregate supply: the model that most economists use to explain short-run fluctuations in economy activity around its long-run trend. Aggregate-demand curve: a curve that shows the quantity of goods and services that households, firms, and governments want to buy at each price level. Price level and consumption: the wealth effect: a decrease in price level makes consumers wealthier, which in turn encourages them to spend more. The increase in consumer spending means a larger quantity of goods and services demanded. Conversely an increase in price level reduces the real value of money, in turn reducing wealth, consumer spending and the quantity of goods demanded. Aggregate supply curve: a curve that shows the quantity of goods and services that firms choose to produce and sell at given price level.

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Related Questions

The aggregate demand curve slopes downward indicating that:
a. an increase in the general price level will increase the aggregate quantity of goods and services demanded.
b. consumers substitute between domestic-made and foreign-made goods as their relative prices change.
c. a change in the interest rate will alter the aggregate quantity of goods and services demanded.
d. an increase in the general price level will reduce the aggregate quantity of goods and services demanded.

which of the following best describes why the aggregate demand curve is downward sloping?

a. As the aggregate price level decreases, the stock of existing physical capital increases.

b. As the aggregate price level increases, consumer expectations about future change.

c. An increase in the aggregate price level causes consumer and investment spending to fall because consumer purchasing power decreases and money demand increases.

d. As a good's price increases, holding all else constant, the good's quantity demanded decreases.

The aggregate demand curve illustrates the relationship between

a. the price level and the potential demand for real GDP.

b. the price level and the potential quantity demanded of real GDP.

c. the price level and the number of goods supplied by firms.

d. the price level and the quantity of goods demanded by households, firms, government, and foreigners.