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ECON 1100 Lecture Notes - Lecture 8: Aggregate Demand, Root Mean Square, Excess Supply

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copperraccoon727
14 Jun 2017
School
Fordham University
Department
Economics
Course
ECON 1100
Professor
Nimrod Segev

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Document Summary

Aggregate demand and aggregate supply: a curve that shows the quantity of goods and services that households, rms, government and consumers abroad want to buy at each price level. Why the ad slopes down: remember y=c+i+g+nx, assume g is xed by government policy, how will prices effect. C,i,nx: wealth effect(c, a decrease in price level raises the real value of money and makes consumers wealthier, which in tern encourages them to spend more which leads to larger quantity of goods and services demanded. Way the ad slopes down: the interest rate effect 1: When the price level fall households do not need to hold as much money as before to buy what they want. Households reduce their holding of money by lending some of it. Excess supply of lending decreases interest rates. Lower interest rates encourages greater spending on investment. Increase in investment increases the quantity of goods and services demanded: the exchange rate effect (nx)

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Related Questions

The aggregate demand curve slopes downward indicating that:
a. an increase in the general price level will increase the aggregate quantity of goods and services demanded.
b. consumers substitute between domestic-made and foreign-made goods as their relative prices change.
c. a change in the interest rate will alter the aggregate quantity of goods and services demanded.
d. an increase in the general price level will reduce the aggregate quantity of goods and services demanded.

A.

In response to a negative supply shock, the government decreases taxes. The most likely result of the government's tax decrease is:
a decrease in unemployment and a decrease in the aggregate price level.
a decrease in unemployment and an increase in the aggregate price level.
an increase in unemployment and an increase in the aggregate price level.
an increase in unemployment and a decrease in the aggregate price level.

B.

If the aggregate price level rises, holding everything constant, consumers will:
demand less aggregate output at all price levels resulting in a shift right of the AD curve.
find their purchasing power has increased and will purchase more goods and services leading to an increase in the aggregate output demanded.
need more money to purchase the same basket of goods which will lead to an increase in the demand for money leading to interest rate increases, and a reduction in the quantity of aggregate output demanded via a drop in investment demand.
need less money to purchase the same basket of goods which will lead to a decrease in the demand for money leading to interest rate decreases, and an increase in the quantity of aggregate output demanded via an increase in investment demand.

A. A decrease in aggregate supply can result in:

  1. a recession
  2. cost-push inflation
  3. demand-pull inflation
  4. unemployment 

B. In the short run (intermediate-range) of the aggregate supply curve, higher aggregate demand will increase

  1. the price level but reduce real GDP.
  2. real GDP without raising the price level
  3. the price level without affecting real GDP
  4. both the price level and real GDP

C. Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model?

  1. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services
  2. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services
  3. As prices fall, the government will have to reduce taxes, which will lead to an increase in the number of goods and services purchased
  4. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the number of goods and services purchased