Ch 13 The AD-AS Model

Question 1

The price index used to illustrate the aggregate demand curve is the:

Answer 1

GDP Deflator (price level)

Question 2

An increase in price level that reduces the real value of wealth is likely to _______ consumption and _______ saving.

Answer 2

decrease; decrease

Question 3

Wealth Effect

Answer 3

When the price level rises the real value of

wealth declines.

Question 4

Interest Rate Effect

Answer 4

When the price level rises, real wealth falls and decrease in savings.

Question 5

International Trade Effect

Answer 5

If the price level in the US rises, this makes our goods (on average) more expensive relative to those in other countries.

Question 6

An increase in the value of a dollar will:

Answer 6

Increase aggregate demand (more spending power)

Question 7

In the long run, technological advances that improve communication can be expected to ______ labor productivity and _______ unemployment.

Answer 7

Increase; have no effect on

Question 8

The stock in capital increases will cause ______ in long-run aggregate supply.

Answer 8

increase

Question 9

Change in expected future prices affects which curve?

Answer 9

(-) SRAS

Question 10

Shocks that cause widespread changes in production costs affects which curve?

Answer 10

(-) SRAS

Question 11

Inflation is higher than expected affects which curve?

Answer 11

(-) SRAS

Question 12

Technology affects which curve?

Answer 12

(+) LRAS

Question 13

Shifts in LRAS affects which curve?

Answer 13

(+) SRAS

Question 14

Change in the expected future price level affects which curve?

Answer 14

(+) AD

Question 15

Change in the value of the dollar affects which curve?

Answer 15

(-) AD

Question 16

Change in foreign income affects which curve?

Answer 16

(+) AD

Question 17

Resources – natural resources, physical capital, human capital affect which curve?

Answer 17

(+) LRAS

Question 18

Institutions affect which curve?

Answer 18

(+) LRAS

Question 19

Shocks to how much can be produced affects which curve?

Answer 19

(+) SRAS

Question 20

Inflation is lower than expected affects which curve?

Answer 20

(+) SRAS

Question 21

Change in real wealth affects which curve?

Answer 21

(+) AD

Question 22

If current SR equilibrium level of output is greater than full employment output, we can expect that in the long run:

Answer 22

The price level will rise and the SRAS will fall.

Question 23

A decrease in aggregate demand is harmful in the short run because ______, but beneficial in the long run because ______.

Answer 23

unemployment rises; the price level falls

Question 24

Suppose firms increase investment spending to replace worn-out equipment. In the short run, AD will _____ and output will _____.

Answer 24

increase;increase

Question 25

Because short run output is less than full employment output, in the long run we would expect the price level to ____.

Answer 25

fall

Question 26

In the short run, a surge in stock market values will ______ price level and ______ the unemployment rate.

Answer 26

increase; decrease

Question 27

In the short run, people worrying about losing their jobs will:

Answer 27

decrease AD and output.