Chapter 10: Aggregate Supply And Aggregate Demand

Question 1

What is aggregate supply?

Answer 1

Relationship between the quantity of real GDP supplied And the price level

Question 2

What is Long-run aggregate supply?

Answer 2

Relationship between the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment

Question 3

What is the short run aggregate supply?

Answer 3

Relationship between the quantity of real GDP supplied and the price level when money wage rate, prices of other resources and potential GDP remain constant

Question 4

When is the real wage rate at full-employment equilibrium level?

Answer 4

When the Short run aggregate supply curve intersects with the Long-run aggregate supply curve

Question 5

What happens to a rise in labour productivity?

Answer 5

Increases LRAS and SRAS

Question 6

What happens to a rise in wage rate?

Answer 6

Decreases SRAS but does not affect LRAS

Question 7

What is the wealth effect?

Answer 7

When the price level rises but other things remain the same, real wealth decreases

Question 8

What is the substitution effect?

Answer 8

When the price level rises and other things remain the same, interest rates rise