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Exam 23: Aggregate Demand and Supply Analysis

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Question 41

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Everything else held constant, an increase in government spending ________ aggregate ________.

A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply

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Question 42

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Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run, everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

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Question 43

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Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes ________.

Everything else held constant, aggregate demand increases when ________.

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause ________ in the unemployment rate in the short run and ________ in the aggregate price level in the short run, everything else held constant.

Which of the following increases aggregate supply in the short-run, everything else held constant?

What is the shape of the long-run aggregate supply curve? Why?

Autonomous monetary policy ________ real interest rates and ________ aggregate output temporarily.

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP the short run and ________ in the inflation rate in the short run, everything else held constant.

This theory views shocks to tastes (workers' willingness to work, for example) and technology (productivity) as the major driving forces behind short-run fluctuations in the business cycle because these shocks lead to substantial short-run fluctuations in the natural rate of output.

As of 2009, China's economy had recovered from the global recession that began in 2008. Use aggregate demand and aggregate supply analysis to explain why, and to explain the likely consequences for China of an increase in the growth rate of the global economy.

A theory of aggregate economic fluctuations called real business cycle theory holds that ________.

Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short run, everything else held constant.

According to aggregate demand and supply analysis, the favorable supply shock of 1995-1999 had the effect of ________.

The aggregate demand curve is downward sloping because a decrease in the price level increases the ________ money supply which ________ interest rates and increases the equilibrium level of aggregate output, everything else held constant.

Suppose the Canadian economy is producing at the natural rate of output. An appreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.)

-In the figure above, at point 2, the shift of the aggregate supply curve from AS1 to AS2 is a result of ________ wages that ________ production cost.

Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations, they do not see much need for activist policy to eliminate high unemployment. "They" refers to proponents of ________.

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in the inflation rate in the short run.