Chapter 22 HW

_____________ flexible wages and prices imply that the short-run aggregate supply curve is ___________. A: Less; steeper B.More; flatter C.More; steeper D.less; vertical

C: More; flexible

Suppose the economy is producing at the nature rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant.

Increase; increase

Describe the adjustment to long-run equilibrium if an economy's short run equilibrium output is above potential output

Since unemployment is less than its natural rate, there will be excessive tightness in the labor market and, consequently, pressure on firms to raise their prices at a more rapid rate, This acceleration of inflation shifts the short run aggregate supply curve up, pushing the economy's output down toward potential output.

The aggregate demand curve slopes downward because a rise in inflations leads:

The monetary policy authorities to raise real interest rates

When inflation and inflation expectations adjust to move output to potential, this is an example of

The self - correcting mechanism

A negative supply shock that raises production costs will cause the aggregate supply curve to shift:

Up

The long-run aggregate supply curve is:

Vertical because changes in labor, capital, and tech change the output an economy can produce over the long run

The short-run aggregate supply curve has:

a positive slope because as the inflation rate increases, so does the quantity of output supplied

Everything else held constant, when output is __________ the natural rate level, wages will begin to ___________, decreasing short-run aggregate supply.

above, rise

The short-run aggregate supply curve slopes upward because an increase in output relative to potential output:

created tight labor and product markets that cause inflation to rise

Everything else held constant, an increase in the cost of production ____________ aggregate ____________

decreases; supply

If autonomous consumption increases, and there is a sharp increase in energy prices, you would expect

inflation to increase, and output to have an ambiguous effect

A decrease in the availability of raw material that increase the price level is called a _____________ shock

negative supply

If workers demand and receive higher real wages ( a successful wage push) the cost of production _________, and the show-run aggregate supply curve shifts ___________.

rises; leftward

if autonomous consumption increases, the the AD curve

shifts to the right

Everything else held constant, if workers expect an increase in the price level, _____________ aggregate supply ___________.

short-run; decreases

What relationship does the aggregate supply curve describe?

total quantity of money supplied and the inflation rate