ScienceEconomicsEcon ch 13 example #46946
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Econ ch 13 example #46946

Geneva Kelly avatar Geneva Kelly
6 April 2024
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An increase in the price level will cause a __________________________ the aggregate demand curve
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Movement up along
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An increase in government purchases will cause a __________________ the aggregate demand curve.
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rightward shift of
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An increase in state income taxes will cause a _______________ the aggregate demand curve.
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leftward shift of
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An increase in interest rates will cause a _______________ the aggregate demand curve
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leftward shift of
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A faster income growth in other countries will cause a __________________ the U.S. aggregate demand curve.
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rightward shift of
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The variables that cause the aggregate demand curve to shift are divided into three​ categories:
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-changes in government​ policies -changes in the expectations of households and​ firms -and changes in foreign variables
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Aggregate demand​ (AD) is comprised of expenditure components that​ include:
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-government​ spending -consumption, -investment -and net exports.
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Variables that shift the aggregate demand curve​ (AD):
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1. Changes in government policies. 2. Expectations of households and firms. 3. Changes in foreign variables.
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The wealth effect refers to the fact that
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when the price level​ falls, the real value of household wealth​ rises, and so will consumption.
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The interest rate effect refers to the fact that a higher price level results in
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higher interest rates and lower investment.
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The​ international-trade effect refers to the fact that an increase in the price level will result in
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a decrease in exports and an increase in imports.
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The​ long-run aggregate supply curve is vertical because in the long​ run,
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changes in the price level do not affect potential​ GDP, as potential GDP depends on the size of the labor​ force, capital​ stock, and technology.
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A supply shock is
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a sudden increase in the price of an important natural​ resource, resulting in a leftward shift of the SRAS curve.
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Stagflation is a
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combo of inflation and recession
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Stagflation occurs when
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A supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP
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The aggregate supply curve shifts as a result of
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increases in the labor force and capital​ stock, technological​ change, expected increases or decreases in the future price​ level, adjustments of workers and firms to errors in past expectations about the price​ level, and unexpected increases or decreases in the price of an important raw material.
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A supply shock is
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an unexpected event that causes the​ short-run aggregate supply curve to shift.