Class Chapt 8 Flashcards
what is Quantity of Real GDP Supplied?
Is the total quantity that firms plan to produce during a given period
What is Aggregate supply?
Is the relationship between the quantity of real GDP supplied and the price level.
Which are the two time frames associated with different states of the labour market?
- Long-run aggregate supply
- Short-run aggregate supply
What is Long-run aggregate supply?
Is the relationship between the quantity of real GDP supplied and the price level when full employment (real GDP = Potentinal GDP)
What does LAS stand for
Long run Agregate Suply
What is Short-run aggregate supply
s the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.
What does SAS stand for?
Short-term Aggregate Supply
In LAS, price level up + wage rate up = ?
price level up + wage rate up = real and Potential GDP are equal.
In short run, A rise in the price level with no change in the money wage rate = ?
A rise in production.
What happens to Real GDP If wage rate no change + prices rise = ?
If wage rate no change + prices rise = Q of Real GDP rises
what can make changes in Aggregate Supply?
- Changes in potential GDP
- Changes in money wage rate (and other factor prices)
What happens in the aggregate supply when potential GDP increases?
both the LAS and SAS curves shift rightward.
How can Potential GDP increase?
- The full-employment quantity of labour increases
- The quantity of capital (physical or human) increases
- An advance in technology occurs
What is “quantity of real GDP demanded”?
is the total amount of final goods and services produced in Canada that people, businesses, governments, and foreigners plan to buy.
4 GDP Demand Factors
1.The price level
2.Expectations
3.Fiscal policy and monetary policy
4.The world economy
A tax cut or an increase in transfer payments increases households’ disposable income > increasing consumption. What factor of demand is this?
Fiscal policy and monetary policy
A fall in the foreign exchange rate lowers the price of domestic goods and services relative to foreign goods and services. What factor of demand is this?
The World Economy
When aggregate demand increases, the AD curve shifts?
Right
What AD stands for?
Aggregate demand
when does Long-run macroeconomic equilibrium happen?
At the intersection of the AD and LAS curves.
above full-employment equilibrium is when?
real GDP exceeds potential GDP
full-employment equilibrium is when ?
real GDP = potential GDP
below full-employment equilibrium is when?
potential GDP exceeds real GDP
What is the “inflationary gap”
The amount by which potential GDP exceeds real GDP, over full employment
What is the recessionary gap?
The gap when real GDP is less than potential GDP, under full employment
An increase in aggregate demand shifts the AD curve to the ?
Right
When does inflation occur In the long run?
When the quantity of money grows faster than the potential GDP.
What are the 2 sources of inflation?
- Demand-pull inflation
- Cost-push inflation
What is a “stagflation”
The combination of a rising price level and a decreasing real GDP
The long-run aggregate supply curve (LAS) is vertical because?
The quantity of potential real GDP does not change when the price level changes.
What shifts the short-run aggregate supply (SAS) curve but not the long-run aggregate supply (LAS) curve?
A) a change in input prices.
B) a change in the quantity of capital.
C) an improved technology.
D) an increase in population
A) a change in input prices
A technological advance shifts what curve in which direction?
SAS and LAS curves rightward.
Which one of the following variables can change without creating a shift of the aggregate demand curve?
A) the interest rate
B) the price level
C) the tax rate
D) expectations about inflation
E) monetary policy
B) the price level
A increase in government expenditure shifts the Agregate demand to the ?
Right
A recessionary gap is the amount by which?
potential GDP exceeds real GDP.
Stagflation is consistent with the story of ________ inflation.
A) cost-pull
B) cost-push
C) demand-pull
D) demand-push
E) push-pull
B) cost-push
4 characteristic of The original Phillips Curve?
A) shows an immediate trade-off between inflation and unemployment.
B) is a short-run relationship.
C) can shift if inflation expectations change over time.
D) can shift if the natural rate of employment changes over time.
