Questions from Ch 21

Question 1

Assume the economy is operating at the full employment level of real GDP when aggregate demand increases from1 2AD to AD . To return to the full employment level of real GDP, the aggregate supply curve shifts ____ and the new equilibrium price level _____

Answer 1

Left / Rises

Question 2

If the AD curve shifts left on a fixed short-run AS curve, the result

Answer 2

Decrease in the price level & real GDP.

Question 3

If the AS curve shifts right on a fixed AD curve, the result is

Answer 3

a decrease in the price level and an increase in real GDP.

Question 4

The AD and AS model is related to the business cycle via

Answer 4

Real GDP

Question 5

If the economy is at full employment, cost-push inflation results from

Answer 5

the AS curve shifting right.

Question 6

If the economy is at full employment, demand-pull inflation results from

Answer 6

the AD curve shifting right

Question 7

Stagflation is characterized by…

Answer 7

rising inflation and rising unemployment

Question 8

In the short run there is ________ relationship between the unemployment rate and the rate of inflation.

Answer 8

a negative

Question 9

A policy maker who is concerned with the rate of inflation may not choose to reduce it because __________.

Answer 9

reducing the rate of inflation means that the unemployment rate will increase