ECN 204 Chapter Notes - Chapter 12: Output Gap, Exchange Rate, Economic Equilibrium

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sapphireduck56

21 Apr 2018

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Lo-12. 1: define aggregate demand (ad) and explain how its downward slope is the result of the real-balances effect, the interest-rate effect, and foreign-trade effect. Aggregate demand curve: the inverse relationship between price level and real gdp. Slopes downward because of the following effects of a change in price level: real-balances effect: higher price level reduces the purchasing power of public"s saving balances. The saving diminishes, because higher the price level the purchasing power of asset will reduce. Example, household buying tv if purchasing power os ,000. However, due to inflation if the price goes to. Therefore, higher the price level, less consumption spending: interest-rate effect: when price level rises, consumers need for money for purchases, and business need money to meet their payrolls and buy additional resources to run their business. This will result in an increase in interest rates. Lo-12. 2: explain the factors that cause changes (shifts) in ad.

Related Questions

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.

raspberrygoat38

1. Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

2. What are the major factors that determine investment, and what impact does each have on aggregate demand?

3. Describe the difference between a microeconomic demand curve and an aggregate demand curve.

4. The aggregate demand curve portrays the relationship between the price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

5. Explain how changes in the stock of capital affect aggregate supply.

6. What is the natural level of output?

periwinklecrow416

Which of the following is correct?

a)the intersection of the aggregate demand and aggregate supply curves determines the equilibrium price and quantity of a single good.

b)The aggregate demand curve indicates a positive relationship between the price level and GDP.

c)The intersection of the aggregate demand and aggregate supply curves determines the equilibrium price and quantity.

d)The intersection of the aggregate demand and aggregate supply curves determines the equilibrium price level and the equilibrium level of real GDP.

e)Other things equal, a downward shift of the aggregate demand curve implies that the economy enters an expansionary phase.

erinhyena808

ECN 204 Chapter Notes - Chapter 12: Output Gap, Exchange Rate, Economic Equilibrium

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