Chapter 13: The Aggregate Demand - Aggregate Supply Model

Question 1

Two paths of study in macroeconomics:

Answer 1

(1) Long-run growth and development

(2) Short-run fluctuations, or business cycles

Question 2

Focuses on theories that affect economies over several decades

Answer 2

Long Run Growth and Development

Question 3

Focuses on time horizons of five years or less

Answer 3

Short Run Growth Fluctuations or Business Cycles

Question 4

GDP during expansions:

Answer 4

Positive

Question 5

GDP during recessions:

Answer 5

Negative

Question 6

Unemployment in expansions:

Answer 6

Falls

Question 7

Unemployment in recessions:

Answer 7

Rises

Question 8

The total demand for final goods and services in an economy

Answer 8

Aggregate Demand

Question 9

Three Reasons Why Quantity of AD and Price Level are Negative:

Answer 9

(1) The Wealth Effect
(2) The Interest Rate Effect
(3) The International Trade Effect

Question 10

The change in quantity of aggregate demand that results from wealth changes due to price level changes.

Answer 10

Wealth Effect

Question 11

Occurs when a change in the price level leads to a change in interest rates and therefore in quantity of aggregate demand.

Answer 11

Interest Rate Effect

Question 12

The net value of one’s accumulated assets

Answer 12

Wealth

Question 13

The interest rates effect occurs through the _____________.

Answer 13

Loanable Funds Market

Question 14

Occurs when a change in the price level leads to a change in the quantity of net exports demanded

Answer 14

International Trade Effect

Question 15

Shift Factors in Aggregate Demand:

Answer 15

(1) Consumption
(2) Investment
(3) Government Spending
(4) Net Exports

Question 16

Consumption is influenced by:

Answer 16

(1) Changes in real wealth
(2) General Expectations about the future
(3) Changes in taxes

Question 17

Investment is influenced by:

Answer 17

(1) Investor Confidence
(2) Interest Rates
(3) Quantity of Money in the Economy

Question 18

Government spending is influenced by:

Answer 18

Policymakers

Question 19

Net Exports influenced by:

Answer 19

Shifts in response to changes in foreign income and the exchange value of the U.S. dollar

Question 20

Movements along the aggregate demand curve are caused by ________.

Answer 20

Change in the price level

Question 21

T or F: Shifts in the aggregate demand curve occur when something other than the price level changes.

Answer 21

True

Question 22

Aggregate Supply changes are measured in:

Answer 22

(1) Short term

(2) Long term

Question 23

A time period sufficient enough for all prices to adjust

Answer 23

Long term

Question 24

u*

Answer 24

The level of output produced when an economy is at the natural rate of unemployment

Question 25

What shifts the long run aggregate supply curve?

Answer 25

(1) Resources (2) Technology (3) Institutions

Question 26

The period of time in which some prices have not yet adjusted

Answer 26

Short Run

Question 27

Three reasons why there is a positive relationship between the price level and the quantity of aggregate supply:

Answer 27

(1) Sticky Input Prices (2) Menu Costs (3) Money Illusions

Question 28

The cost of changing prices

Answer 28

Menu Costs

Question 29

Occurs when people interpret nominal changes in wages or prices as real changes. As discussed, this is false.

Answer 29

Money Illusion

Question 30

T or F: Whenever the long run aggregate supply curve shifts, it takes the short run aggregate supply curve with it.

Answer 30

True

Question 31

Factors that shift only the short run aggregate supply curve:

Answer 31

(1) Changes in resource prices (2) Changes in expectations of prices (3) Supply Shocks

Question 32

Surprise events that change a firm's production costs

Answer 32

Supply Shock

Question 33

Reached when the quantity of aggregate demand is equal to the quantity of aggregate supply in the short and long run.

Answer 33

Long Run Equilibrium

Question 34

LRAS = SRAS = AD

Answer 34

Long Run Equilibirum

Question 35

Economy is at full employment and the unemployment rate is equal to the natural rate.

Answer 35

Long Run Equilibrium