AD/AS worksheet

False

(True/ False) An increase in aggregate demand would lead to deflation.

True

(True/ False) Equilibrium output is $3,000 worth of goods and services.

True

(True/ False) Full employment exists when the economy produces S3,000 worth of goods and services.

True

(True/ False) In the short run equilibrium, output can be greater than or less than S3,000

True

(True/ False) The interest rate effect explains the downward slope of the aggregate demand curve.

True

(True/ False) The net export effect explains the downward slope of the aggregate demand curve.

False

(True/ False) The substitution effect explains the downward slope of the aggregate demand curve.

True

(True/ False) The wealth effect explains the downward slope of the aggregate demand curve.

True

(True/False) The aggregate demand curve demonstrates an inverse relationship between the price level and real gross domestic product demanded.

True

(True/False) The aggregate demand curve is negatively sloped.

True

(True/False) The aggregate demand curve shows how real gross domestic product demanded changes with the changes in the price level.

Decrease

A recession could result from a _____ in aggregate demand.

Stock market wealth

A reduced _____ will cause consumption and, as a result, aggregate demand to decrease.

Leave consumers with more disposable income

A reduction in personal income taxes, other things being equal, will...

Increase in input prices

A(n) _____ the short-run aggregate supply curve to shift inward, which means the quantity supplied at any price level declines.

AD could either increase or decrease, depending on which change was of greater magnitude

An increase in government purchases, combined with a decrease in investment, would have what effect on aggregate demand?

Increases, increases, increases

As the price level decreases, real wealth _____, purchasing power _____, and the quantity of RGDP demanded _____.

Increases increases.

In a stagflation situation, unemployment _____ and the price level _____.

Aggregate price level

In the AD/AS model, the vertical axis is labeled:

Decreases RGDP supplied.

In the short run, a decrease in the price level...

Wealth

The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. This example best illustrates what effect?

Long run aggregate supply curve

The _____ is vertical at full employment.

Real GDP demanded at different price levels

The aggregate demand curve displays...

Investment

The amount spent on new factories and machinery

Consumption

The largest component of aggregate demand is...

Perfectly vertical

The long-run aggregate supply curve is...

Economic growth

The long-run aggregate supply curve shifts outward when there is an...

Say's law

The proposition that "supply creates its own demand" is called...

Aggregate supply

The real GDP that firms will produce at varying price levels

Profits increase at higher price levels

The short-run aggregate supply curve slopes up because...

Short-run equilibrium only

This figure depicts an economy in...

Hiring factors of production, the profit level of firms, employment in the industry

What is the typical response of firms to an increase in the price of what they sell, for given input prices? An increase in _____, _____, and _____.

Interest rates fall and boost investment

What may be an explanation for the shift in aggregate demand from A to B?

Less, exceeds

When a recessionary gap occurs, real output is _____ than the natural level of output, and unemployment _____ its natural rate.

Wages, labor productivity

_____ increases without increases in _____ could be expected to shift the short-run aggregate supply curve upward.

Advances in technology

_____ will most likely increase the economy's long-run aggregate supply.

Natural disaster

A _____ could be expected to shift the short-run aggregate supply curve upward.

Rise

A _____ in the price of oil could be expected to shift the short-run aggregate supply curve upward

Consumer confidence

A fall in _____ will cause consumption and, as a result, aggregate demand to decrease.

government purchases, increase

A massive increase in interstate highway construction will affect aggregate demand through which sector? Will this change increase or decrease aggregate demand?

Decreases, increases

According to the real wealth effect, if you are living in a period of falling price levels on a fixed income ( that is not indexed ) , the cost of the goods and services you buy _____, and your real income _____.

C+I+G+(X-M)

Aggregate demand is the sum of _____.

Decrease in U.S. exports and U.S. aggregate demand

An economic bust or severe downturn in the Japanese economy wil likely result in a(n)...

Tax

An increase in _____ will cause consumption and, as a result, aggregate demand to decrease.

P0

If there is a increase in input prices, the price level will be at _____.

Shift to the right

Economic growth is shown as a _____ in the long-run aggregate supply curve.

Increases, increase in income

Empirical evidence suggests that consumption _____ with any _____.

3,000

Equilibrium output is _____.

100

Equilibrium price level is _____.

The AD curve shifts to the right

If Europe experiences a large increase in income, what will happen in the United States?

Decrease

If exports and imports both decrease, but exports decrease more than imports the AD would...

Increase

If exports increased and imports decreased, AD would...

AD2

If imports rise, the AD curve will shift from AD0 to _____.

P2

If imports rise, the price will be at _____.

4

If private consumption in the United States were 67 percent of GDP, investment were 16 percent, government purchases were 13 percent, exports were 12 percent, and imports were 8 percent, net exports would be equal to _____ percent of GDP. [67%+16%+13%+(12-8)]

P1

If rising confidence in the economy eases job security fears, the pricelevel will be at _____.

AD1

If rising confidence in the economy eases job security fears, this will shift the AD curve from AD0 to _____.

Nothing will happen to it

If the price level rises, what will happen to the quantity of RGDP produced along the long-run aggregate supply curve?

SRAS1

If there are advances in technology, the SRAS curve will shift from SRAS0 to _____.

P1

If there are advances in technology, the price level will be at _____.

SRAS2

If there is a increase in input prices, the SRAS curve will shift from SRAS0 to _____.

Consumer debt

Rising levels of _____ will cause consumption and, as a result, aggregate demand to decrease.

Classical cconomists

Say's law was emphasized by...

A rightward shift in AD1

Starting at the long-run equilibrium, point d, if businesses become irrationally exuberant and expand investment, this will cause _____.

C

Starting at the long-run equilibrium, point d, if businesses become irrationally exuberant and expand investment, will move to a short-run equilibrium at point _____.

A leftward shift in SRAS2

Starting at the long-run equilibrium, point d, if there is a supply shock, such as a drastic increase in the price oil, this will cause _____.

A

Starting at the long-run equilibrium, point d, if there is a supply shock, such as a drastic increase in the price oil, will move to a short-run equilibrium at point _____.

Inflationary gap

Starting from long-run equilibrium, an increase in aggregate demand will cause a(n) _____ in the short run.