ECON102 Chapter Notes - Chapter 26: Aggregate Supply, Potential Output, Aggregate Demand

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lemonbeetle804

15 Jun 2018

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Maria Viola

For unlimited access to Textbook Notes, a Class+ subscription is required.

Chapter 26:

Aggregate Supply-Aggregate Demand (AS-AD) Model: Explains how real GDP and

the price level are determined and how they interact. An imaginary market for

the total of all the final goods and services that make up real GDP.

Quantity of Real GDP Supplied: The total quantity of goods and services, valued

in constant base year (2007) dollars, that firms plan to produce during a given

period.

Aggregate Supply: The relationship between the quantity of real GDP supplied

and the price level.

- Long-run aggregate supply

- Short-run aggregate supply

Long-run Aggregate Supply (LAS): The relationship between the quantity of real

GDP supplied and the price level when the money wage rate changes in step with

the price level to maintain full employment. LAS curve is always vertical because

when there is no change in price relative to cost, production doesn’t change.

Short-run Aggregate Supply (SAS): The relationship between the quantity of real

GDP supplied the price level when the money wage rate, the prices of other

resources, and potential GDP remain constant.

Shifts of the LAS and SAS Curves:

- Change in Potential GDP

o Change in full-employment quantity of labor

o Change in the quantity of capital

o Advances in technology

- ONLY SAS SHIFTS: Change in Money Wage Rate

o Departures from full-employment

o Expectations about inflation

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Document Summary

Aggregate supply-aggregate demand (as-ad) model: explains how real gdp and the price level are determined and how they interact. An imaginary market for the total of all the final goods and services that make up real gdp. Quantity of real gdp supplied: the total quantity of goods and services, valued in constant base year (2007) dollars, that firms plan to produce during a given period. Aggregate supply: the relationship between the quantity of real gdp supplied and the price level. Long-run aggregate supply (las): the relationship between the quantity of real. Gdp supplied and the price level when the money wage rate changes in step with the price level to maintain full employment. Las curve is always vertical because when there is no change in price relative to cost, production doesn"t change. Short-run aggregate supply (sas): the relationship between the quantity of real.

Related Questions

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

A) macroeconomic equilibrium

B) aggregate supply (AS)

C) aggregate demand (AD)

D) potential GDP

ochresea-lion451

In the Keynesian model

aggregate demand determines real GDP per year.

the short-run aggregate supply curve determines real GDP.

unemployment cannot persist for long periods of time.

the aggregate demand curve determines the price level.

A terrible winter storm causes enormous problems in the

northeastern

part of the United States. This would cause

the short-run aggregate supply curve to shift to the left, but would have no effect on the long-run aggregate supply curve.

both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right.

both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts.

Equilibrium real GDP rises after the dollar strengthened. From this we can conclude that

the increase in aggregate demand was greater than the decrease in aggregate supply.

the decrease in aggregate demand was more than the increase in aggregate supply.

the decrease in aggregate demand was less than the increase in aggregate supply.

the increase in aggregate demand was less than the decrease in aggregate supply.

Saving is

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and serviceswhile savings is the difference between real GDP and disposable income.

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

A permanent reduction in investment spending leads to

a proportional decrease in real GDP.

a more than proportional decrease in real GDP.

a more than proportional increase in real GDP.

a less than proportional decrease in real GDP.

An increase in net exports leads to an increase in real GDP. Further,

consumption spending increases while investment spending decreases.

consumption spending increases but saving does not change.

consumption spending and saving increase.

government spending decreases to offset the increase in net exports.

An increase in aggregate spending that is caused by a factor other than the price level will lead to the

aggregate demand curve shifting to the right.

aggregate supply curve shifting to the right.

aggregate supply curve shifting to the left.

aggregate demand curve shifting to the left.

The marginal propensity to consume is 0.9. The multiplier is

0.9.

1.11.

0.1.

10.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

real GDP increases.

the price level rises

the price level falls.

real GDP decreases.

Other things equal, the lower the total real value of final goods and services demanded in the economy the

more the production possibilities cure shifts to the left.

lower the price level.

higher the price level.

lower the level of endowments.

The long-run aggregate supply curve can be thought of as the

level of output for which real GDP equals nominal GDP.

level of output that the nation is currently producing.

level of real GDP associated with a constant price level.

full-employment level of real GDP.