Aggregate Demand and Aggregate Supply Flashcards
What is Recession
It is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
What is Depression
It is a severe recession
Money is a veil behind the actions of real economic forces are concealed.
A. True
B. False
True
Money does not matter in a classical model.
A. True
B. False
True
In the long run, prices change and real variables are fixed.
A. True
B. False
True
Money neutrality holds nominal variables and doesn’t affect real variables.
A. True
B. False
True
In the short run, prices are fixed, and real variables change. Money neutrality does not hold.
A. True
B. False
True
When studying year to year fluctuations in the economy, the assumption of monetary neutrality is not appropriate.
A. True
B. False
True
In the short run, most real and nominal variables are intertwined.
A. True
B. False
True
What is the model of aggregate demand and aggregate supply.
It is the model that economists use to explain short run fluctuations in economic activity around its long-run trend.
What is aggregate-demand curve
It is a curve that shows the quantity of goods and services that households, firms, and the government want to buy at each price level.
What is aggregate-supply curve
It is a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level.
What is the Wealth effect
It is an economic theory that suggests that individuals tend to spend more when they perceive themselves to be wealthier when there’s a decrease in price level.
What is the Interest rate effect
It is a concept in monetary economics that describes how changes in interest rate decrease can influence overall economic activity.
What is the real exchange rate effect
It is the tendency for a fall in the price level to decrease the real exchange rate and increase net exports.
What are the 4 changes why the aggregate-demand curve might shift.
- Change in consumption
- Change in investment
- Change in government purchases
- Change in net exports
If Canadians become more concerned with saving for retirement and reduce current consumption,aggregate-demand will decline and shift to the left.
A. True
B. False
True
If the government cuts taxes, it encourages people to pend more, resulting in an increase in aggregate-demand and will shift right.
A. True
B. False
True
If firms become pessimistic about future business conditions, they may cut back on investment spending, shifting aggregate-demand to the left.
A. True
B. False
True
Suppose the computer industry introduces a faster line of computers and many firms decide to invest in new computer systems. This will lead the aggregate-demand curve to the right.
A. True
B. False
True
An increase in the supply of money lowers the interest rate on the short run.
A. True
B. False
True
If the value of the Canadian dollar increases, Canadian goods become more expensive to foreigners. Net exports fall, and aggregate demand shifts to the left.
A. True
B. False
True
The vertical LRAS curve is a graphical representation of the classical dichotomy and money neutrality.
A. True
B. False
True
What is the Natural rate of output
It is the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate.
What are the 4 changes why aggregate-supply curve might shift.
- Changes in capital
- Changes in labour
- Changes in natural resources
- Changes in technological knowledge
In the short run, the price level does affect the economy’s output.
A. True
B. False
True
An increase in the overall level of prices tends to raise the quantity of goods and services supplied.
A. True
B. False
True
What is the sticky wage theory
It is an economic concept that suggests that wages do not adjust immediately to price changes in the overall price level or economic conditions.
What is the sticky price theory
It is an economic concept that suggests that prices of goods and services do not adjust immediately to changes in the overall price level or economic conditions.
What is the misperceptions theory
It is an economic concept that is part of the New Keynesian school of thought. It offers an explanation for why changes in the overall price level or the inflation rate can affect real economic activity in the short run.
In the short run, shifts in aggregate demand cause fluctuations in the economy’s output of goods and services.
A. True
B. False
True
In the long run, shifts in aggregate demand affect the overall price level but do not affect the level of output.
A. True
B. False
True
Policymakers who influence aggregate demand can potentially mitigate that severity of economic fluctuations.
A. True
B. False
True
What is Stagflation
Stagflation is a situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.
Shifts in aggregate supply can cause stagflation.
A. True
B. False
True
Policymakers who can influence aggregate demand can potentially mitigate the adverse impact on output but only at the cost of exacerbating the problem of inflation.
A. True
B. False
True
