Chapter 13 - Aggregate supply and aggregate demand

Question 1

Quantity of real GDP supplied

Answer 1

the total amount of final goods and services that firms in the US plan to produce and it depends on the quantities of:
Labor employed
Capital, human capital, and the state of technology
Land and natural resources
Entrepreneurial talen

Question 2

Aggregare supply

Answer 2

the relationship between the quantity of real GDP supplied and the price level when all other influences on production plans remain the same

Question 3

Why does the quantity of real GDP supplied increase when the price level rises and decrease when the price level falls?

Answer 3

a movement along the AS curve brings a change in the real wage rate. If the price level rises, the real wage rises.

Question 4

Changes in Aggregar Supply

Answer 4

1) potential GDP changes
Higher the GDP, AS curve shifts rightwards
2) the money wage rate changes
Higher the wage, AS decrease and shifts to left
3) the money prices of other resources change
- anything that changes potential GDP changes aggregate supply and shifts the AS curve.

Question 5

Aggregate Demand

Answer 5

• the quantity of real GDP demand is the total amount of final goods produced in the United States
  AD = C + I + G + X - M
• the relationship between the quantity of real GDP demanded and the price level

Question 6

Changes in Aggregate Demand

Answer 6

An increase/decrease in price level will cause a movement along the demand curve

• Factors that change aggregate demand are:
  1) expectations about the future
  2) fiscal policy and monetary policy
  3) the state of the world economy

Question 7

Aggregate Demand Multiplier

Answer 7

ASK

Question 8

Three types of macroeconomic equilibrium

Answer 8

1) Full employment equilibrium - When equilibrium real GDP equals potential GDP
2) Recessionary gap - when the economy is below full employment
3) inflationary rate - when the economy is above full employment

PS when real GDP is below or above potential GDP, the money wage rate gradually changes to bring full employment

Question 9

Inflation cycles

Answer 9

Inflation occurs if aggregate demand grows faster than potential GDP.
two sources of inflation:
1) Demand pull inflation
2) cost- push inflation

Question 10

Demand pull inflation

Answer 10

inflation that starts because aggregate demand increases
- it can be kicked off by any of the factors that change AD but the only thing that can sustain it is growth in the quantity of money

Question 11

Cost push inflation

Answer 11

inflation that begins with an increase in cost
- cost push inflation can be kicked off by an increase in costs but the only thing that can sustain it is growth in the quantity of money

Question 12

Stagflation

Answer 12

Decreasing real gap and rising price level