Chapter 20 pt 2 Macroecon

what is the natural rate of output

YN -the amount of output the economy produces when unemployment is at its natural rate

what does sticky wage theory mean

nominal wage is sticky so price is set in advance so if P>PE, revenue is higher and labor cost is low so production is more valuable, increasing output and employment

. Other things the same, what happens to the price level and the quantity of output when the short run aggregate supply curve shifts to the right?

price decreases while Y increases

what does sticky price theory mean

prices are sticky so if P>PE, firms will increase output and employment

how does LRAS shifting to right affect AD

An increase in MS leads to an increase in MD

what is the equation that describes the theories of why SRAS is sloped upward

Y = YN + a(P-PE)

what does misperception theory mean

firms might confuse change in p with change in relative price so they increase output and employment

How does an increase in price affect SRAS

increase in price leads to increase in quantity of G&S supplied

what are the four steps in analyzing economic fluctuations

1. Determine whether the event shifts AD or AS 2. Determine whether curves shift left or right 3. use AD and AS diagram how the shit impacts Y and P 4. use AD and AS diagram to see how economy moves from SR to LR equilibrium

How does shift in AD differ b/w LRAS & SRAS

LRAS: shift in AD doesn't affect output or employment SRAS: shift in AD does affect output and employment

. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift? a. Insufficient rainfall in the planting season adversely affects the agricultural sector. b. Increase in the country's capital stock. c. Expected price level decreases.

SRAS left SRAS right SRAS right

what are the theories to why SRAS slopes upwards

Sticky wage. sticky price, and misconception theory

. The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change a. in the price level and output. b. in the price level, but not output. c. in output, but not the price level. d. in neither the price level nor output.

b

Which of the following would cause stagflation? a. aggregate demand shifts right b. aggregate demand shifts left c. aggregate supply shifts right d. aggregate supply shifts left

d

what is YN determined by

economy's stock of capital, natural, labor, and technological resources

How does the aggregate supply differ between long and short run

long run: vertical because price doesn't affect real gdp Short run: upward slopping

. According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had a. increased, so it would increase production. b. increased, so it would decrease production. c. decreased, so it would increase production. d. decreased, so it would decrease production.

a

. Suppose the economy is in long-run equilibrium. If there is an increase in the supply of labor as well as an increase in the money supply, then we would expect that in the short-run, a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same.

a

The long-run aggregate supply curve shifts right if a. technology improves. b. the price level decreases. c. the money supply increases. d. All of the above are correct.

a

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, a. production is more profitable and employment rises. b. production is more profitable and employment falls. c. production is less profitable and employment rises. d. production is less profitable and employment falls.

a

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is a. less than it desires and increase its production. b. less than it desires and decrease its production. c. more than it desires and increase its production. d. less than it desires and decrease its production.

a

Imagine the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. a. Which curve shifts and in which direction? In the short run, what happens to the price level and real GDP? b. What happens to the expected price level and what impact does it have on wage bargaining? c. In the long run, which curve shifts due to the change in price expectations? Which direction does it shift? d. How is the new long-run equilibrium different from the original one?

a. AD shifts right and P and Y rise B. pE rises and prices are bargains are stuck for high prices C. SRAS left D. p is higher but Y is the same

. An increase in the expected price level shifts short-run aggregate supply to the a. right, and an increase in the actual price level shifts short-run aggregate supply to the right. b. right, and an increase in the actual price level does not shift short-run aggregate supply. c. left, and an increase in the actual price level shifts short-run aggregate supply to the left. d. left, and an increase in the actual price level does not shift short-run aggregate supply.

d