Ch12: study guide
Other things equal if the national income of the major trading partners of the US were to rise the US
aggregate demand curve would shift to the right.
Which of the following would most likely shift the aggregate demand curve to the right?
an increase in stock prices that increases consumer wealth
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
The immediate short run aggregate supply curve represents circumstances where
both input and output prices are fixed.
The factors that affect the amount that consumers businesses government and foreigners wish to purchase at each price level are the
determinants of aggregate demand.
20. 📈 Real Domestic output GDP /price level In the diagram, a shift from AS2 to AS3 might be caused by
increase in business taxes and costly government regulation.
If investment decreases by $20 billion and the economy's MPC is 0.5 the aggregate demand curve will shift
leftward by $40 billion at each price level.
The aggregate demand curve
shows the amount of real output that will be purchased at each possible price level.
The aggregate supply curve short run
slopes upward and to the right.
The real-balances interest-rate and foreign purchases effects all help explain
why the aggregate demand curve is downsloping.
14. 📈
3
19. 📉 Real Domestic output GDP/price level In the diagram, a shift from AS1 to AS2 might be caused by
a decrease in the prices of domestic resources.
25. refer to the data below. suppose that the present equilibrium price level in level of real GDP are 100 and 225 and that data set B represents the relevant aggregate supply schedule for the economy. a. what must be the current amount of real output demand at the 100 price level? b. if the amount of output demanded declined by $25 at the 100 price levels shown in B. what would be the new equilibrium real GDP? in business cycle terminology what would economists call this change in real gdp?
a. $225 b. $200 a recession
15. 📉 real domestic output/price level In the diagram, the economy's immediate short run AS curve is line ___ it's short run AS curve is ____ and it's long run AS curve is line ____.
3, 2, 1
What percentage of the average US firm's costs is accounted for by wages and salaries?
75
The foreign purchases effect
moves the economy along a fixed aggregate demand curve.
The aggregate supply curve (short run) is upsloping because
per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
An increase in net exports will shift the AD curve to the
right by a multiple of the change in net exports
Suppose that technological advancement stimulate $20 billion in additional investment spending. If the MPC=0.6 how much will the change in investment increase aggregate demand?
$50 billion
24. suppose that the table below shows an economy's relationship between real output and input needed to produce that output. a. What is the level of productivity in this economy? b. What is the per unit cost of production if the price of each input unit is $2? c. Assume that the input price increases from $2 to $3 with no company change in productivity what is the new per unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output? d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 100%. What would be the new per unit cost of production? What effectwould this change in per unit production cost have on the economy's aggregate supply curve? it would cause the aggregate supply curve to shift? What effect would this shift of aggregate supply have on the price level and the level of real output?
a. 2.67 b. 1.12. or 0.75 c . 1.50. or 1.12 To the left The price level would increase and real output would decrease. d. 0.64 or. 0.38 right The price level would decrease and real output would increase.
21. suppose that consumer spending initially raises by five billion for everyone percent rise and household wealth and that investment spending initially rises by 20 billion for everyone percent point fall in the real interest rate. Also assume that the economy's multiplier is 4. a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 2 percentage points. in what direction and by how much will the aggregate demand curve initially shift at each price level? b. In what direction and by how much will it eventually shift?
a. Aggregate demand will initially shift *rightward* by *$15 billion* b. Aggregate demand will eventually shift *rightward* by *$60 billion.*
a. which set of data illustrates aggregate supply in the immediate short run in North Vaudeville? the short run? the long run? b. assuming no change in hours of work if real output per hour of work increases by 10%, what would be the new level of real GDP in the right column of a?
a. The data in B The data in A The data in C b. 302.5. =(1.1x275) 275. =(1.1x250) 247.5. =(1.1x225) 220. =(1.1x200) increase in aggregate supply
Other things equal a decrease in the re interest rate will
expand investment and shift the AD curve to the right.
The foreign purchases effect suggests that an increase in the US price level relative to other countries will
increase US imports and decrease US exports.
