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Part 2, Class 5
Terms in this set (19)
The aggregate demand graph is _________________.
1. Wealth (higher wealth, higher demand)
2. Intrest Rate (lower rate, higher demand)
3. Foreign Purchases (you want a weaker dollar, more purchases, higher demand).
Name three reasons why the aggregate demand graph is downsloping.
2. Expectation of Future Prices
6. Interest Rate
7. Expected Return
10. The Value of the American Dollar
What things can make the aggregate demand move left or right on the graph?
The short-term aggregate supply graph is _________________.
The law of diminishing marginal return (if you add workers to make more products, then the cost goes up.)
Name the main reason why the aggregate supply demand graph is upsloping.
6. Expectation of Demand
7. Supply Shock
What things can make the aggregate supply move left or right on the graph?
A hurricane, flood, or tornado.
What is an adverse supply shock?
What way would an adverse supply shock make the SRAS move?
What way would a beneficial supply shock make the SRAS move?
The stopping point where one is full, at capacity.
What is long term aggregate supply?
To open up a new facility.
What is the solution to LRAS?
150, Growing, Inflation, Government Spending
Classicals says that once the real GDP reaches ____ that we will stop ___________ and have _________, but Keynsians say that ________________________ can fix that.
Short term, Long term
Keynsians are more __________, where classical are more ______________. (Long term or short term)
We are producing more less than what we are supposed to and are in a recession, therefore you need to boost the economy.
If the LRAS is left of equilibrium, what is happening?
We are producing too much and are experiencing inflation and therefore need to slow the economy.
If the LRAS is right of equilibrium, what is happening?
1. Supply creates its own demand
2. Flexible interest rates
3. Flexible prices and wages
5. Recession is short, therefore there is
6. No need for government spending
What are the six main arguments of Classical surrounding market stabilization?
2. Not flexible interest rates
3. Not flexible prices and wages
4. Business cycle needs government action, therefore
5. Government spending is necessary
What are the five main arguments of Keynsians surrounding market stabilization?
Add taxes and government spending to shift the demand (aggregate) to the right, making prices go up.
How would a Keynsian suggest we get out of a recession?
Add supply, moving the supply (aggregate) to the right, making prices go down.
How would a Classical suggest we get out of a recession?
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