Chapter 8 Flashcards
reasons why AD curve is downward sloping
- real balance effect
- interest rate effect
- international trade effect
what is the change in the purchasing power of dollar denominated assets?
real balance effect
what causes a movement along the AD curve?
a change in price level
suppose that consumption increases at each price level. as a result, AD ________, and the AD curve shifts ________
increases; rightward
A rise in foreign real national income tends to raise US _______, shifting the US AD curve to the _______
exports; right
a decrease in the price of electricity will cause….
a rightward shift in the SRAS curve
an increase in the price of oil will cause
a leftward shift in the SRAS curve
in the short run, a decrease in wage rates shifts the
SRAS curve to the right, causing equilibrium price level to fall and equilibrium real GDP to increase
what would cause a rightward shift in the AD curve?
an increase in government purchases of goods and services
the dollar appreciates in value. this makes foreign produced goods ______ for americans ans US produced goods ______ for foreigners. As a result ________ fall and US ________ rise.
cheaper, more expensive, exports, imports
foreign real income rises. This raises US _______, which ________ aggregate demand (AD). The AD curve shifts _________.
net exports, raises, rightward
What two factors change net exports?
- foreign national income (their income rises, they buy more US goods, the US net exports rise)
- Exchange rate (dollar appreciation/depreciation)
an adverse supply shock will shift the SRAS to the _____
left
what will definitely shift the aggregate demand?
business taxes decline and foreign real income rises
-wealth increases and individuals expect higher prices
velocity is the average number of times a dollar is spent to buy _______
final goods and services in a year
