ECON102 Chapter Notes - Chapter 28: Aggregate Demand, Aggregate Supply, Deflation

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peachgerbil481

30 Mar 2016

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Maryann Vaughan

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ECON102 Full Course Notes

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Chapter 28 the business cycle, inlation, and. In the long run, inlation occurs if the quantity of money grows faster than potential gdp. In the short run, many factors can start an inlation, and real. To study these interactions, we distinguish two sources of inlation: demand pull inlation, cost push inlation: An inlation that starts because aggregate demand increases is called demand-pull inlation. Demand-pull inlation can begin with any factor that increases aggregate demand. Initial efect of an increase in aggregate demand: Figure 28. 3(a) illustrates the start of a demand- pull inlation. Starting from full employment, an increase in aggregate demand shifts the ad curve rightward. The price level rises, real gdp increases, and an inlationary gap arises. The rising price level is the irst step in the demand-pull inlation. Figure 28. 1(b) shows that the money wage rate rises and the sas curve shifts leftward. The price level rises and real gdp decreases back to potential gdp.

Related Questions

A. A decrease in aggregate supply can result in:

a recession
cost-push inflation
demand-pull inflation
unemployment

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

the price level but reduce real GDP.
real GDP without raising the price level
the price level without affecting real GDP
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?

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

carminewasp285

In the money market, money supply is determined by the central bank, such as the Fed in the U.S. Because of this, money supply curve is usually vertical in the short run, while the money demand curve is downward sloping. The quantity demanded of money has an inverse relationship with the interest rate, but a direct relationship with both the price level and real GDP. Therefore, when the general price level increases, what will most likely happen?

		A. The money demand curve will shift to the right.
		B. The money demand curve will shift to the left.
		C. Both the interest rate and investment will rise.
		D. Only A and C.
		E. Only B and C.

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is in the Keynesian range of the aggregate supply curve, then

		A. real GDP will fall and the price level will rise.
		B. real GDP will rise and the price level will fall.
		C. only the real GDP will fall.
		D. only the price level will fall.
		E. both real GDP and the price level will fall.

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

		A. The federal government increases spending for highways and bridges.
		B. Consumers expect an economic downturn.
		C. The federal government increases income taxes.
		D. Only A and C.
		E. Only B and C.

Which of the following will shift the aggregate supply curve to the left?

		A. All workers agree to a reduction in wages.
		B. The federal government increases the gasoline taxes.
		C. An improvement in technology raises labor productivity.
		D. Only A and C.
		E. Only B and C

There are also two kinds of deflation, the demand-pull deflation and cost-push deflation. Then which of the following is most likely to be true?

		A. An increase in AD will cause the demand-pull deflation.
		B. An increase in AS (or SRAS) will cause a cost-push deflation.
		C. Economists worry about the demand-pull deflation more than the cost-push deflation.
		D. Only A and C.
		E. Only B and C.

The short-run aggregate supply curve (SRAS) can be written as follows: Y = Yf + b (p - pe), where Y = real GDP, Yf = full-employment real GDP, p = price level, pe = expected price level, and b is a positive coefficient. The SRAS can be re-written as p = pe - (1/b)(Yf) + (1/b)(Y). Then which of the following is true?

		A. An increase in pe will cause a rightward shift of the SRAS curve.
		B. An increase in pe will cause a leftward shift of the SRAS curve.
		C. An increase in Yf will cause a leftward shift of the SRAS curve.
		D. Only A and C.
		E. Only B and C.

lavenderoyster638

8. What did pre-Keynesian believe about the market and its ability to pull itself out of a recession?

12. What are the relations between government spending, the marginal propensity to consume, the marginal propensity to save, and the multiplier effect?

13. What are some of the problems with using fiscal policy in an effective manner?

18. What is the new classical approach to the stimulatory impact of fiscal policy implemented through deficit spending?

22. What approach to the money supply do those embracing monetarism suggest?

24. How do shifting price levels impact debtors and savers?

25. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax cut?

26. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax increase?

27. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an increase in government spending?

28. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of a cut in government spending?

29. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an expansionary monetary policy?

30. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a restrictive monetary policy?

32. How does a deficit and large debt influence the economy?

33. What is the relationship between the expansion of the money supply and inflation?

35. How do expectations impact the effectiveness of monetary policy?

36. What restricts the ability of the Fed to purchase U.S. securities?

39. What is the impact of higher interest rates on the value of a currency and a nation%u2019s net exports?

41. Why do countries willing lend the U.S. government money despite the relatively large debt to GDP ratio of the United States?

42. How does trade contribute to growth?

44. How does the relative size of government contribute to growth?

47. Do High Income countries always grow at a faster pace than lesser developed countries?

48. How do high levels of inflation effect growth?

49. Can you identify the amount of growth in an economy by using the percentage change formula?

50. What countries are presently experiencing high rates of economic growth?

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ECON102 Chapter Notes - Chapter 28: Aggregate Demand, Aggregate Supply, Deflation

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