Chapter 13: Aggregate Demand And Aggregate Supply Analysis

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

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

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

The effect of the price level on consumption is called the __________, and it is one reason the aggregate demand curve is downward sloping.

The effect of the price level on investment and consumption is known as the __________, and it is a second reason the aggregate demand curve is downward sloping.

The effect of the price level on net exports is known as the __________, and it is a third reason the aggregate demand curve is downward sloping.

The actions the Federal Reserve takes to manage the money supply and interest rates to achieve macroeconomic policy objectives.

Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

A curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied.

The LRAS curve is __________ and shifts to the __________ each year, as: 1. the number of workers in the economy increases. 2. the economy accumulates more machinery and equipment, and 3. technological change occurs.

Profits rise when the prices of final goods and services firms sell rise more rapidly than the prices they pay for __________ which rise more slowly. This situation increases the willingness of firms to supply more goods and services.

As the price level rises, some firms are __________ their prices. A firm in this situation may find its sales increasing and, therefore, will increase production.

Some firms __________ in the price level. Most economist believe that this is the explanation why some firms adjust prices more slowly than others and why the prices of other inputs change more slowly than the prices of final goods and services.

__________ make some wages and prices "sticky." This is one reason the SRAS curve is upward sloping.

__________ make some wages and prices "sticky." This is one reason the SRAS curve is upward sloping.

The costs to firms of changing prices. They make some prices sticky. This is a third reason the SRAS curve is upward sloping.

An unexpected event that causes the short-run aggregate supply curve to shift.

A combination of inflation and recession, usually resulting from a supply shock.

A model that incorporates the following macroeconomic facts: • Potential GDP increases continually, shifting the LRAS curve to the right. • During most years, the AD curve shifts to the right. • Except during periods when workers and firms expect high rates of inflation, the SRAS curve shifts to the right.

As illustrated in the dynamic AD-AS model, __________ usually occurs • if total spending in the economy grows faster than total production. • if the AD curve shifts to the right by more than the the LRAS curve.

Suppose that​ initially, the economy is in​ long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the​ economy, the AD curve will shift from A. AD0 to AD1. B. AD1 to AD0.

Suppose that​ initially, the economy is in​ long-run macroeconomic equilibrium at point A. If the AD curve shifts from AD0 to AD1 due to increased pessimism about the economy, the new short-run macroeconomic equilibrium occurs at A. point A. B. point B. C. point C.

Suppose that​ the economy is in long-run macroeconomic equilibrium at point B. ​Long-run adjustment will shift the SRAS curve from __________ as workers adjust to​ lower-than-expected prices. A. SRAS0 to SRAS1 B. SRAS1 to SRAS0

Suppose that​ the economy is in​ long-run macroeconomic equilibrium at point B. If the SRAS curve shifts from SRAS0 to SRAS1, The new​ long-run macroeconomic equilibrium occurs at A. point A. B. point B. C. point C.

Consider the figure shown. Why does the​ short-run aggregate supply curve​ (SRAS) slope​ upward? A. Prices of final goods rise more quickly than the prices of inputs. B. Firms and workers fail to predict changes in the price level. C. Contracts keep wages​ "sticky". D. All of the above. E. A and B only.

In the diagram to the​ right, moving from point A to point B is called a __________ the AD curve. A. shift in B. movement along

Moving from point A to point C is referred to as a __________ the AD curve. A. shift in B. movement along

According to the dynamic​ AD-AS model, what is the most common cause of​ inflation? A. AD increases by more than LRAS. B. Total spending increases faster than total production. C. The U.S. Mint prints too much currency. D. All of the above. E. A and B only.

Which of the following is a major difference between the​ AD-AS model and the dynamic​ AD-AS model? The dynamic​ AD-AS model assumes A. AD only includes​ consumption, investment, and government​ purchases, while the​ AD-AS model assumes AD includes​ consumption, investment, government purchases and net exports. B. the SRAS is stable and will not​ shift, while the​ AD-AS model assumes the SRAS can only change with an exogenous event such as oil price changes. C. the economy does not experience​ long-run growth, while the​ AD-AS model assumes there is constant inflation in the economy. D. potential GDP increases​ continually, while the​ AD-AS model assumes the LRAS does not change.

Consider the​ downward-sloping aggregate demand​ (AD) curve to the right. Which of the following results in a movement from point A to point B​ (a movement up along the AD​ curve) or from point A to point C​ (a movement down along the AD​ curve)? ​(Mark all that​ apply.) A. Wealth effect B. Inflation effect C. Multiplier effect D. Interest rate effect

A change in the price level causes a __________ the​ short-run aggregate supply​ (SRAS) curve. In the​ figure, this is shown by moving from __________.

A change in any factor other than price causes a __________ the SRAS curve. In the​ figure, this is shown by moving from __________.

The following graph shows aggregate demand and​ short-run aggregate supply. The line that properly shows the effect of an unexpected decrease in the price of oil is __________.

The following graph shows aggregate demand and​ short-run aggregate supply. The point that properly shows the new equilibrium price level and real GDP is __________.