Economics 1022A/B Lecture Notes - Lecture 7: Durable Good, Disposable And Discretionary Income, Canadian Dollar

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2 Mar 2018

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ECON 1022A/B Full Course Notes

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The purpose of the aggregate supply-aggregated demand model that you study in this chapter is to explain how real gdp and the price level are determined and how they interact. The (cid:395)ua(cid:374)tities i(cid:374) this (cid:862)(cid:373)a(cid:396)ket(cid:863) is (cid:396)eal gdp a(cid:374)d the price is the price level measured by the gdp deflator. One thing that the as-ad model shares with the competitive market model is that both distinguish between supply and quantity supplied. The quantity supplied of real gdp supplied is the total quantity of goods and services, valued n constant base-year (2007) dollars, that firms plan to produce during a given period. This quantity depends on the quantity of labour employed, the quantity of physical and human capital, and state of technology: at any given time, the quantity of capital and the state of technology are fixed. They depend on decisions that were made in the past. They depend on decisions that were made in the pat.

Related Questions

Suppose that the equation for the aggregate demand is y= 7,000 + 2,400/p. in this real business cycle model, the equation for natural real GDP is Yn = 9,000 + technology shock. The technology shocks for periods 1-6 are given below.

Period: 1 2 3 4 5 6

Technology shock: -400 -80 0 1,000 400 0

A. Calculate the points on the aggregate demand curve when the price level equals 0.75, 0.80, 1.00, 1.20, 1.25, and 1.50.

B. Compute the price level and real GDP in periods 1-6. Describe the cyclical behavior of real GDP and the price level in this real business cycle model.

1. Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

2. What are the major factors that determine investment, and what impact does each have on aggregate demand?

3. Describe the difference between a microeconomic demand curve and an aggregate demand curve.

4. The aggregate demand curve portrays the relationship between the price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

5. Explain how changes in the stock of capital affect aggregate supply.

6. What is the natural level of output?

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1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

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Economics 1022A/B Lecture Notes - Lecture 7: Durable Good, Disposable And Discretionary Income, Canadian Dollar

ECON 1022A/B Full Course Notes

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