ECON 1BB3 Study Guide - Final Guide: Aggregate Demand, Autarky, Money Supply
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10 Sep 2016
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ECON 1BB3 Full Course Notes
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How does domestic spending respond to changes in the overall. Economic variables fluctuate together eg. gdp increases, and unemployment decreases. The ad curve has a negative slope for three reasons: wealth effect = c. 2: real exchange rate effect = nx. Suppose the price level in an economy falls. People could buy same goods with less money. Chapter 16: 2 assets money (transaction motives) and bonds (pay interest = Anything other than p that affects c, i, g, or nx, will cause the ad curve to shift. What determines the quantity of goods and services supplied in the. Slope: a, k, l, n: do not depend on price (recall the classical dichotomy: the long run separation of real and nominal variables) Shift factors: any change in a, k, l, n, h, will cause lras to shift. Sras: y=y* + a (p-pe) a=parameter (pe)=expected price level. The slope is positive for the three reasons: be able to explain 1 in detail.
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a) | 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.
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b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
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c) | Stagflation arises in the context of the AD-AS model when some external factor causes
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d) | 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.
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e) | Which of the following will shift the aggregate demand curve to the right?
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f) | 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?
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g) | 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
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h) | 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.
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i) | The aggregate demand curve shows
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j) | 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 __________.
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