ECON-200 Lecture Notes - Lecture 24: Aggregate Supply, Aggregate Demand

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turquoiseturtle299

9 Sep 2020

School

Diablo Valley College

Department

Economics

Course

ECON-200

Professor

Sorce

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Document Summary

Upward slope of the as curve: the sticky-price theory. Prices of some goods and services adjust sluggishly in response to changing economic conditions. An unexpected fall in the price level leaves some firms with higher-than- desired prices. This depresses their sales, which induces these firms to reduce the quantity of goods and services they produce. Many other factors, however, affect the quantity of goods and services supplied at any given price level. If there is an increase in the expected price level, how does it affect the quantityof goods and services supplied and the. Sras curve shifts right if the natural rate of output increases. This happens if an increase in labour, physical k, human k, natural resources and technology. Sras curve shifts right if the expected price level decreases, because lower p level (along with lower wage rates) encourage firms to expand production due to lower costs of production.

Related Questions

6) According to Classical theory, the economy is self-regulating. If it is in a recessionary gap, what happens? Question options:

Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise.

Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises.

Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls.

none of the above

7) According to the classical economists, which of the following statements is true?

Question options:

Financial markets ensure that S will equal I..

Interest rate flexibility will ensure that planned saving is equal to planned investment.

There is a direct relationship between the amount individuals plan to save and the interest rate - higher rates cause people to save more and lower rates reduce savings.

Interest rates determine how much business firms invest - higher interest rates reduce investment and lower rates increase investment.

All of the above are true.

10)

If actual Real GDP is greater than the full employment Real GDP, then the (actual) unemployment rate is

Question options:

	greater than the natural unemployment rate and an inflationary gap exists.
	less than the natural unemployment rate and a recessionary gap exists.
	greater than the natural unemployment rate and a recessionary gap exists.
	less than the natural unemployment rate and an inflationary gap exists.
	equal to the natural unemployment rate and no gap exists.

grayspider936

The sticky-price theory implies that

A. the short-run aggregate supply curve is upward-sloping.

B. an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.

C. menu costs influence the speed of adjustment of prices.

D. All of the above are correct.

ivoryllama613

In the AD-AS model, stagflation does not persist, because the working of the self-correcting mechanism of the economy _____ the level of output and _____ the price level until the economy eventually returns to a long-run equilibrium state, where actual output _____ potential output.

	decreases; decreases; falls short of
	increases; decreases; equals
	decreases; increases; exceeds
	decreases; increases; equals
	increases; decreases; exceeds

The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that

	Y* is independent of the price level and that actual output Y > Y* in the long run
	Y* equals actual output (Y) in the long run
	Y* is independent of the price level and that actual output Y = Y* in the long run
	Y* is independent of the price level
	Y* is independent of the price level and that actual output Y < Y* in the long run

Stagflation arises in the context of the AD-AS model when some external factor causes

	the LRAS curve to shift to the right
	the AD curve to shift leftwards
	the SRAS curve to shift downwards
	the SRAS curve to shift upwards
	the AD curve to shift rightwards

If the SRAS curve is positively sloped, then a decrease in the demand for Canadian-made goods in Europe will lead to _____ in the price level, in the short run.

	either an increase or a decrease
	no change
	an increase
	a decrease
	an initial increase, and then a decrease

Which of the following will shift the aggregate demand curve to the right?

	Consumers become pessimistic about the future
	A new technology is developed that will increase profits
	Income taxes are raised
	Foreign economies fall into recession, reducing their demand for domestic exports
	The government reduces purchases to balance the budget

Suppose a stock market crash decreases the stock of household wealth and therefore causes autonomous consumption to fall. Which of the following is the likely result?

	A leftward shift the AD curve
	There will be no movement of the AD curve
	A movement down the AD curve
	A movement up the AD curve
	A rightward of the shift the AD curve

An economy is characterized by the AD equation P = 200 ? 0.02Y, SRAS equation P = 100 and LRAS equation Y* = 5000. In the absence of any change in policy or exogenous shocks, this economy will achieve a long-run price level of

	100
	110
	120
	90
	105

The AD-AS model depicts a self-correcting economy. This means that the price level in the model adjusts automatically in response to a(n) _____ gap, so as to eliminate the _____ gap in the long run, without requiring any help from government policies.

	recessionary; recessionary
	recessionary; expansionary
	expansionary; expansionary
	output; output
	expansionary; recessionary

The aggregate demand curve shows

	the amount of planned aggregate expenditure (and output) at the current price level
	the amount of planned aggregate expenditure (and output) at an average price level
	the amount of planned aggregate expenditure (and output) at a constant price level
	the amount of planned aggregate expenditure (and output) at various price levels
	the amount of planned aggregate expenditure (and output) at last year's price level

Consider an economy initially at long-run equilibrium with output (Y) equal to potential output (Y*). If the SRAS is positively sloped, then a shift to the right of the AD curve will lead to _____ in the price level, in the short run. In the long run, the SRAS curve will shift to the _____ and the equilibrium will be at __________.

	an increase; left; Y = Y*
	a decrease; right; Y > Y*
	an increase; right; Y = Y*
	a decrease; left; Y > Y*
	no change; left; Y = Y*

ECON-200 Lecture Notes - Lecture 24: Aggregate Supply, Aggregate Demand

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