Quiz #6 Review

Question 1

aggregate supply and demand curve, X and Y axis

Answer 1

X axis: total output or GDP

Y axis: Price Level

Question 2

aggregate demand curve

Answer 2

demand for all goods and services in the whole economy

Question 3

how is the aggregate demand curve measured?

Answer 3

the AD curve is the TOTAL expenditures as measured by CIG(NX)

Question 4

aggregate supply curve

Answer 4

what we can produce and what we do produce

Question 5

what direction is the aggregate supply curve?

Answer 5

it is straight up and down!

Question 6

what does the left side of the aggregate supply curve indicate?

Answer 6

output levels are below full employment (high unemployment!)

(6.4%)

Question 7

what does the right side of the aggregate supply curve indicate?

Answer 7

output levels are above full employment (good)

4%

Question 8

Short Run Aggregate Supply Curve

Answer 8

in the short run, we may be producing above or below the long term level
-this creates a short run aggregate supply curve
-

Question 9

AD curve changes

Answer 9

1. change in consumer’s expectations
2. change in government policies
3. change in foreign variables

Question 10

SRAS curve shifters

Answer 10

1. unexpected change in the price of an important natural resource
2. significant change in technology–a technology shock
3. labor costs

Question 11

Change in consumer’s expectations

Answer 11

if everyone starts spending less and saving more, AD shifts left
-if everyone is feeling good about the economy, they spend more, AD shifts right

Question 12

change in government’s policies

Answer 12

if you lower taxes, AD shifts right

-if you raise taxes, AD shifts left

Question 13

change in monetary policy

Answer 13

• lower interest rates, AD shifts right

- higher interest rates, AD shifts left

Question 14

change in money supply

Answer 14

• increase money supply, AD shifts right

- decrease money supply, AD shifts left

Question 15

foreign income levels

Answer 15

if foreign income rises, AD shifts right

rest of world is richer, they buy more of our stuff, X goes up in CIGXM

Question 16

exchange rates

Answer 16

if exchange rates cause the US dollar to get weaker, AD shifts right
(our exports become less expensive, other countries buy more of our stuff, X goes up)

Question 17

unexpected change in the price of an important natural resource

Answer 17

-SRAS curve shifter
-if price of oil goes up, SRAS shifts left
if price of oil goes down, SRAS shifts right

Question 18

significant change in technology

Answer 18

• SRAS curve shifter
• a negative technology shock would shift SRAS left
• positive technology shock = SRAS shift right

Question 19

labor costs

Answer 19

• SRAS curve shifter
• rise in labor costs = SRAS shift left
• decline in labor costs = SRAS shifts right

Question 20

which shifts the AD curve, fiscal or monetary policy?

Answer 20

both shift the AD curve

Question 21

when you let the market correct itself, what line moves?

Answer 21

the SRAS moves, not AD

Question 22

why does the SRAS move when markets are left uncorrected?

Answer 22

the cost of labor begins to decline

-a lower cost of labor shifts the SRAS right

Question 23

how does the automatic mechanism work?

Answer 23

• if we just let the markets play out during a recession, costs and wages will fall
• a decrease in the cost of labor shifts the SRAS right
• we soon reach the right side of the SRAS curve to full employment

Question 24

aggregate demand and aggregate supply model

Answer 24

a model that explains short-run fluctuations in real GDP and the price level

Question 25

Aggregate Demand Curve:

Answer 25

a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and government

Question 26

short-run aggregate supply curve:

Answer 26

a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms