what does the aggregate demand curve show
the amount of real output which will be purchased at each possible price level
Why is the aggregate demand curve downward sloping?
Because of the real balances effect, interest rates, and foreign purchases
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending
The real-balances effect indicates that
a higher price level will decrease the real value of many financial assets and therefore reduce spending
True or False:
When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending?
Other things equal, if the national incomes of the major trading partners of the United States were to rise,
AD would shift right
A decline in investment will shift the AD curve to the:
left by a multiple of the change in investment.
An increase in net exports will shift the AD curve to the
right by a multiple of the change in investment
If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift
rightward by $50 billion at each price level
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial
spending because of the
The graphical relationship between the price level and the amount of real GDP that businesses will offer for
sale is known as the
The aggregate supply curve (short-run) slopes upward and to the right because
wages and other resource prices adjust only slowly to the price level
The aggregate supply curve (short-run) is upsloping because:
per-unit production costs rise as the economy moves toward and beyond its full-employment real
Other things equal, appreciation of the dollar:
decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
Graphically, demand-pull inflation is shown as a
Rightward shift of the AD curve along an upsloping AS curve
If aggregate demand decreases, and as a result, real output and employment decline but the price level
remains unchanged, we can assume that
the price level is inflexible downward and a recession has occurred
A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will:
increase the price level by more than real output
If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect
aggregate demand to decrease and aggregate supply to increase
In which of the following sets of circumstances can we confidently expect inflation?
aggregate supply decreases and aggregate demand increases
If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity
supplied, we would expect:
Why do higher interest rates result in a strengthening of the dollar?
Because more people want to put their savings in the U.S.
What is the net export effect?
When interest rates go down the dollar weakens resulting in an increase of exports and a decrease of imports
True or false: Classical thinkers believe that complete dependence on the marker will not produce the best government
True or false: Keynes thinkers believe the government should play a limited roll in the economy
True or false: Classical thinkers believe that wages, prices, and interest raters are not flexible enough to always self correct the government
What is the real balances effect?
As APL increases, the value of financial assets fall so people buy less
R > I
Rate of return on investment must be greater than the interest paid on money borrowed to invest
What is the consumption function
The relationship between consumption spending and disposable income
What does the multiplier tell us and how is it found?
It is the cumulative change in real GDP given an initial change in spending. It is found by 1/(1-MPC)
What does the short run AS curve portray?
The amount of time it takes for you to adjust your monetary circumstances to inflation
What does the long run AS curve portray?
The price increases catching up to the cost increases and everything adjusting
True or false: A decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward.
Efficiency wages are
above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages
When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of
True or false:An increase in imports (independently of a change in the U.S. price level) will increase both U.S. aggregate
supply and U.S. aggregate demand.