Homework 9
Refer to Figure 12-2. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?
10%
Refer to Figure 12-1. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?
A
Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico. This subsequently drove up natural gas, gasoline, and heating oil prices. As a result, this should
shift the short-run aggregate supply curve to the left.
The static aggregate demand and aggregate supply curve model helps explain
short term fluctuations in real GDP and the price level.
What is potential GDP?
the level of real GDP in the long run
The long-run adjustment to a negative supply shock results in
the short-run aggregate supply curve shifting to the right
Refer to Figure 12-1. Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.
B and D
When the price level in the United States rises relative to the price level of other countries, ________ will rise, ________ will fall, and ________ will fall.
imports; exports; net exports
If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve?
This will shift the aggregate demand curve to the left.
Which of the following best describes the "wealth effect"?
When the price level falls, the real value of household wealth rises.
The long-run aggregate supply curve
is vertical.
Which of the following would cause the short-run aggregate supply curve to shift to the right?
a technological advance
Short-run macroeconomic equilibrium occurs when
aggregate demand and short-run aggregate supply intersect.
Long-run macroeconomic equilibrium occurs when
aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.`
On the long-run aggregate supply curve,
an increase in the price level has no effect on the aggregate quantity of GDP supplied.
The international trade effect states that
an increase in the price level will lower net exports.
Inflation will
decrease the quantity of real GDP demanded.
Changes in the price level
do not affect the level of aggregate supply in the long run
Potential GDP is also referred to as
full-employment GDP.
The level of real GDP in the long run is called
potential GDP.
The aggregate demand curve shows the relationship between the ________ and ________.
price level; quantity of real GDP demanded
A decrease in aggregate demand results in a(n) ________ in the ________.
recession; short run
Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
Aggregate demand and potential real GDP decrease continuously.
Refer to Figure 12-1. Which of the points in the above graph are possible long-run equilibria?
A and C
In the dynamic aggregated demand and aggregate supply model, inflation occurs if
AD shifts faster than AS.
In the early 2000s, oil shocks have been less likely to push the U.S. economy into recession than in the past. Which of the following can explain that?
Firms have begun to use less oil-dependent production processes.
The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation. What did this technological change do the short-run supply curve?
It shifted the short-run aggregate supply curve to the right.
Refer to Figure 12-2. Given the economy is at point A in year 1, What will happen to the unemployment rate in year 2?
It will rise.
An increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?
The price level will rise, and the level of GDP will be unaffected.
The level of long-run aggregate supply is not affected by
changes in the price level.