Chapter 20

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of thing they consume have fallen by the same percentage. They may infer that the reward to working is

temperature low and so supply is a smaller quantity of labor

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts left.

According to classical macroeconomic theory changes in the money supply change real GDP but not the price level.

False

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

False

Because the price level does not affect the long run determinates of real GDP, the long run aggregate supply is vertical.

True

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together

True

The AD and AS model helps us understand both short run economic fluctuations and how the economy moves from short run to long run.

True

The recessions associated with the business cycle come at regular intervals.

True

When output rises, unemployment falls.

True

Imagine that in the current year the economy is in the long run equilibrium then the Federal government reduces its purchases of goods by 50%. Which curve shifts in which direction?

aggregate demand shifts left

An increase in household savings causes consumption to

fall and aggregate demand to decrease

Other things the same, if technology increases, then in the long run

output is higher and prices are lower

How is the new long-run equilibrium different from the original one?

the price level is the same and real GDP is lower

The wealth effect, interest rate effect, and exchange rate effect are all explanations for

the slope of the aggregate demand curve