Chapter 10: Aggregate Supply & Aggregate Demand

Examples of monetary policy that decreases aggregate demand include:

a decrease in the quantity of money and an increase in interest rates.

Starting from a full-employment equilibrium, a decrease in short-run aggregate supply _____the price level, _____real GDP, and creates _________.

increases; decreases; stagflation

As we move up along the short-run supply curve, ________.

the money wage rate, the prices of other resources, and potential GDP remain constant.

A movement along the aggregate demand curve occurs if__________.

the price level changes and all other factors remain unchanged.

The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, while everything else remains the same.

the price level

Potential GDP increases for all of the following reasons EXCEPT:

the price levels fall

When the price level in Mexico rises,

the quantity of real GDP demanded decreases

An increase in the price level when the money wage rate remains unchanged increases_______.

the quantity of real GDP supplied.

As we move up along the long-run aggregate supply curve, ____________

the real wage rate remains constant

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China ________.

- does NOT change China's long-run aggregate supply -decreases China's short-run aggregate supply does NOT change Japan's short-run aggregate supply

Mexico trades with the U.S. When the economy goes into an expansion, _________.

Mexico's exports to the U.S. INCREASE, Mexico's aggregate demand INCREASES, and Mexico's AD curve SHIFTS RIGHTWARD

A rise in the money wage rate with no change in potential GDP creates______.

a leftward shift of the SAS curve and no change in the LAS curve.

A macroeconomic equilibrium in which real GDP exceeds potential GDP is _____equilibrium. And one in which real GDP is less than potential GDP is _____equilibrium.

an above full-employment; a below full-employment

Examples of fiscal policy that increase aggregate demand include______

an increase in government expenditure, a decrease in taxes, and and increase in transfer payments

The Fed cuts the quantity of money and all other things remain the same. In the short run, aggregate demand_________

decreases

A deep recesion hits the world economy.

decreases aggregate demand

U.S. businesses expect future profits to fall.

decreases aggregate demand

When Mexico decreases the quantity of money, Mexico's aggregate demand______.

decreases and its AD curve shifts leftward.

The World oil price rises sharply.

decreases short-run aggregate suppy

An increase in expected future income_______ aggregate demand.

increases

An increase in expected future profits ______aggregate demand.

increases

An increase in the expected future inflation rate ______aggregate demand

increases

Canada trades with the U.S. a. The government of Canada cuts income taxes. Canada's aggregate demand _______. b. The U.S. experiences strong economic growth. Canada's aggregate demand ________. c. Canada sets new environmental standards that require power utillities to upgrade the production facilities. Canada's aggregate demand _______.

increases; increases; increases

Starting from a full-employment equilibrium, an increase in aggregate demand_____real GDP, and creates _______gap. In the long run, the money wage rage_____, short-run aggregate suppy ____, and the economy returns to a full-employment equilibrium.

increases; an inflationary rises; increases

In the short run and increase in consumer spending ______real GDP and _______the price level.

increases; increases

In the short run, an increase in exports _______real GDP and_____the price level.

increases; increases

In the short-run, an increase in business investment ______real GDP and _____the price level.

increases; increases

When the full-employment quantity of labor increases, or the quantity of capital increases, or technology advances __________.

long-run aggregate supply AND short-run aggregate supply increase.

Long-run macroeconomic equilibrium______________.

occurs when real GDP = potential GDP, and the LAS, SAS and AD curves INTERSECT.

The quantity of real GDP supplied depends on all of the following EXCEPT the _____

quantity of real GDP demanded

When the price level, the money wage rate and other factor prices rise by the same percentage, there is a movement along_______. Potential GDP________.

the LAS curve; does not change.

When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied _____.

the SAS curve, decreases