ECON- Chpt. 20 Practice Problems

Refer to Figure 33-9. Suppose the economy starts where LRAS=AD1=SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to

P2,Y1.

The long-run aggregate supply curve shifts right if

-immigration from abroad increases. -the capital stock increases. -technology advances. *ALL OF THE ABOVE*

Refer to Figure33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1, then it must be the case that

aggregate demand has decreased.

Changes in the price level affect which components of aggregate demand?

consumption, investment, and net exports

An economic contraction caused by a shift in aggregate demand (AD) causes prices to

fall in the short run, and rise back to their original level in the long run.

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to

decrease consumption, shifting the aggregate demand curve to the left.

The model of aggregate demand and aggregate supply explains the relationship between

real GDP and the average price level in economy