Economics Final Exam with Schiman-The rational man

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

Real GDP and price level

Suppose the economy is in long run equilibrium- then because of corporate scandal..... people become pessimistic regarding future and retain that level of pessimism for some time. What happens to the expected price level?

The expected price level falls

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, real wealth of households

increaces and as a result consumption spending increases. This effect contributes to the downward sloping of aggregate demand

When money supply decreases

interest rates rise and aggregate demand shifts left

If speculators lost confidence in foreign economies and so wanted to buy more u.s bonds

the dollar would appreciate which cause AD to shift left

If economy is initially at long run equilibrium; and AD decreases then in the long run the price level

is lower and output is the same as original long run equilibrium

Suppose the economy is in long run equilibrium- then because of corporate scandal..... people become pessimistic regarding future and retain that level of pessimism for some time. Which curve shifts in which direction?

Aggregate demand shifts left

Suppose the economy is in long run equilibrium- then because of corporate scandal..... people become pessimistic regarding future and retain that level of pessimism for some time. In the short run what happens to the price level and real GDP

Both the price level and real GDP fall

aggregate demand shifts left when the government

cuts military spending

At the end of WW2 many Europeans countries were rebuilding and so were eager to buy capital goods and has rising incomes. We would expect that the rebuilding increased aggregate demand in

both the u.s and europe

Suppose a fall in stock prices makes people feel poorer; the decrease in wealth would induce people to

decrease consumption, shown by shifting the AD curve to the left

What does the MPC say

for every dollar earned, x is the amount spent

When the price level increases, interest rates

rise; which means consumers will want to spend less on homebuilding

Suppose the economy is in long run equilibrium- then because of corporate scandal..... people become pessimistic regarding future and retain that level of pessimism for some time. In the long run, the change in prices expectations created by pessimism shifts

short run aggregate supply right

An increase in the expected price level shifts the

short run but not the long run aggregate supply curve left

Suppose the economy is in long run equilibrium- then because of corporate scandal..... people become pessimistic regarding future and retain that level of pessimism for some time. how is the new long-run equilibrium different from the original one

the price level is lower and real GDP is the same