Ch 13 The AD-AS Model Flashcards
The price index used to illustrate the aggregate demand curve is the:
GDP Deflator (price level)
An increase in price level that reduces the real value of wealth is likely to _______ consumption and _______ saving.
decrease; decrease
Wealth Effect
When the price level rises the real value of
wealth declines.
Interest Rate Effect
When the price level rises, real wealth falls and decrease in savings.
International Trade Effect
If the price level in the US rises, this makes our goods (on average) more expensive relative to those in other countries.
An increase in the value of a dollar will:
Increase aggregate demand (more spending power)
In the long run, technological advances that improve communication can be expected to ______ labor productivity and _______ unemployment.
Increase; have no effect on
The stock in capital increases will cause ______ in long-run aggregate supply.
increase
Change in expected future prices affects which curve?
(-) SRAS
Shocks that cause widespread changes in production costs affects which curve?
(-) SRAS
Inflation is higher than expected affects which curve?
(-) SRAS
Technology affects which curve?
(+) LRAS
Shifts in LRAS affects which curve?
(+) SRAS
Change in the expected future price level affects which curve?
(+) AD
Change in the value of the dollar affects which curve?
(-) AD
Change in foreign income affects which curve?
(+) AD
Resources – natural resources, physical capital, human capital affect which curve?
(+) LRAS
Institutions affect which curve?
(+) LRAS
Shocks to how much can be produced affects which curve?
(+) SRAS
Inflation is lower than expected affects which curve?
(+) SRAS
Change in real wealth affects which curve?
(+) AD
If current SR equilibrium level of output is greater than full employment output, we can expect that in the long run:
The price level will rise and the SRAS will fall.
A decrease in aggregate demand is harmful in the short run because ______, but beneficial in the long run because ______.
unemployment rises; the price level falls
Suppose firms increase investment spending to replace worn-out equipment. In the short run, AD will _____ and output will _____.
increase;increase
Because short run output is less than full employment output, in the long run we would expect the price level to ____.
fall
In the short run, a surge in stock market values will ______ price level and ______ the unemployment rate.
increase; decrease
In the short run, people worrying about losing their jobs will:
decrease AD and output.
