ECON 201 Chapter 13: Chapter 13- Aggregate supply and aggregate demand (Macroeconomics Hubbard and O'Brien 6th Edition)
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11 Apr 2018
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Ad and as model: explains short-run fluctuations in real gdp and price level. Ad curve: relationship between price level and level of planned aggregate expenditure (ae) by households, firms, and the government. *ad curve is downward sloping because the lower the prices, the more spending that occurs, so changing prices causes movement along the ad curve. Changes in government policies (fiscal and monetary policy shift the ad curve) Expected increases or decreases in future price level. Unexpected increases or decreases in the price of an important raw material. Sras: relationship in the short run between price level and quantity of real gdp supplied by firms. *shifts upward because workers and firms fail to accurately predict future price levels. Supply shock: unexpected event that causes sras to shift. Short-run equilibrium below potential gdp: wages and prices fall sras shifts right. Short-run equilibrium above potential gdp: wages and prices rise sras shifts left.
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a) | In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.
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b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
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c) | Stagflation arises in the context of the AD-AS model when some external factor causes
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d) | If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.
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e) | Which of the following will shift the aggregate demand curve to the right?
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f) | Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?
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g) | An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of
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h) | The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.
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i) | The aggregate demand curve shows
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j) | Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.
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