Ch 13 Aggregate Demand, Aggregate Supply, and Business Cycles

Question 1

Long-run equilibrium

Answer 1

a situation in which the AD and AS curves intersect at potential output Y*

Question 2

Short-run equilibrium

Answer 2

a situation where the AD and AS curves intersect at a level of real GDP that is above or below potential

Question 3

Aggregate demand (AD) curve

Answer 3

a curve that shows the amount of output consumers, firms, government, and customers abroad want to purchase at each inflation rate, holding all other factors constant

Question 4

Monetary policy rule

Answer 4

a rule that describes how a central bank, like the Fed, takes action in response to changes in the state of the economy

Question 5

Changes in aggregate demand

Answer 5

a shift of the AD curve

Question 6

Demand shocks

Answer 6

changes in planned spending that are not caused by changes in output or the inflation rate

Question 7

Aggregate supply (AS) curve

Answer 7

a curve that shows the relationship between the amount of output firms want to produce and the inflation rate, holding all other factors constant

Question 8

Change in aggregate supply

Answer 8

a shift of the AS curve

Question 9

Inflation shock

Answer 9

a sudden change in the normal behavior of inflation, unrelated to the nation’s output gap

Question 10

Self-correcting property

Answer 10

the fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation