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ECN 204 Chapter Notes - Chapter 16: Aggregate Demand, Aggregate Supply, Proposition

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School
Ryerson University
Department
Economics
Course
ECN 204
Professor
Natalia B

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Document Summary

Short run aggregate supply curve slopes upward because nominal wages and other inputs are fixed while other output prices change. Long run aggregate supply curve is vertical because input prices eventually rise in response to changes in output prices. Long equilibrium gdp and price level occur at intersection of aggregate demand curve, long run aggregate supply curve, and short run aggregate supply curve. In long run equilibrium, economy achieves natural rate of unemployment and full potential real output. Demand pull inflation occurs when increase in aggregate demand pulls up price level. Cost push inflation arises from an increase in the cost of production at each price level. When gov introduces fiscal policy to cost push inflation, increasing demand will further increase inflation by increasing the price level. In short run, demand pull inflation increases price level and real output. In the long run, nominal wages rise, supply curve shifts left and only price level increase.

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Related Questions

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:

A. ​increase the price level in the long run but have no effect on real gross domestic product.

B. shift the aggregate demand curve rightward and increase the real output in the long run.

C. shift the short-run aggregate supply curve rightward and increase both the price level and real output in the long run.

D. ​decrease both the price level and real gross domestic product in the long run.

Demand-pull inflation is caused by

A. Wage increases that are higher than productivity growth.

B. High levels of aggregate demand in the short run.

C. An increase in aggregate supply that pulls up both output and the price level.

D. Recession.

E. An increase in the costs of production, which pulls prices higher.