Module 17

Question 1

aggregate demand curve

Answer 1

relationship between aggregate price level and the quantity of aggregate output demanded (rGDP) by households, firms, government, and the world

Question 2

components of GDP

Answer 2

GDP = C + G + I + Xn
C = consumer spending
G = govt purchases of goods and services
I = investment spending
Xn = exports - imports

Question 3

wealth effect

Answer 3

change in consumer spending caused by the altered purchasing power of consumer’s assets
rise in PL –> dec in C

Question 4

interest rate effect

Answer 4

change in investment and consumer spending caused by altered interest rates from changes in demand for money
inc PL –> save more –> inc interest –> dec I, C

Question 5

causes of shift of AD

Answer 5

1) changes in expectations
2) changes in wealth
3) size of existing stock of physical capital
4) fiscal policy
5) monetary policy

Question 6

consumer confidence index

Answer 6

measurement of consumer optimism about the future (expected future income or sales)

Question 7

changes in wealth effect on AD

Answer 7

when value of assets increase, aggregate spending ic

Question 8

fiscal policy

Answer 8

the use of taxes, govt transfers, or govt purchases to stabilize the economy by shifting G and C

Question 9

monetary policy

Answer 9

the central bank’s use of changes in the quantity of money or interest rates to stabilize the economy

Question 10

size of existing stock of physical capital effect on AD

Answer 10

more current inventories –> dec I –> dec AD