ECO100Y5 Chapter Notes - Chapter 23: Pearson Education, Aggregate Demand, Aggregate Supply

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Chapter 23 - the demand side of the economy. A rise in the price level lowers the real value of money held by the private sector. Because the higher the price level, the less a given amount of money can purchase. A fall in the price level raises the real value of money held by the private sector. This leads to a rise in wealth and desired consumption and thus there is an upward shift in the ae curve. Changes in the price level change the wealth of bondholders and bond issuers, but because the changes offset each other, there is no change in aggregate wealth. A rise in the price level (with a constant exchange rate) shifts the net export function downward, which causes a downward shift in the ae curve. A fall in the domestic price level shifts the net export function upward and hence the ae curve upward. An increase in p thus reduces private-sector wealth:

Related Questions

10,A change in the price levelâ ________ the AE curve andâ ________ the AD curve.

âshifts; shifts

has no effectâ on; results in a movement along

results in a movementâ along; results in a movement along

results in a movementâ along; shifts

âshifts; results in a movement along

17,When the price levelâ falls, the aggregate planned expenditure curve shiftsâ ________, equilibrium expenditureâ ________ and there is a movementâ ________ along the aggregate demand curve.

âupward; increases; upward

âdownward; decreases; downward

âupward; decreases; downward

âupward; increases; downward

âdownward; increases; upward

21,Which of the following increases the size of the expenditureâ multiplier?

an increase in autonomous spending

a decrease in the marginal propensity to consume

a decrease in the marginal propensity to import

an increase in the marginal income tax rate

an increase in investment

23,If the quantity of real GDP demanded is greater than the quantity of real GDPâ supplied, then

the price level falls and firms decrease production.

aggregate demand changes to restore equilibrium.

the economy must be producing at potential GDP.

the price level falls to restore the macroeconomic equilibrium

the price level rises and firms increase production.

24, ________ can trigger an expansion.

Equality between aggregate expenditure and real GDP

A decrease in induced expenditure

A downward shift of the AE line

An increase in autonomous expenditure

A decrease in autonomous expenditure

greyarmadillo136

Part 1

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale.

a.The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.

b.The long-run aggregate supply curve can never shift.

c.Either a decrease in the nominal money supply by the Federal Reserve, all else held constant or an increase in the price level, all else held constant, will shift the aggregate demand (AD) curve to the left.

d.The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.

e.Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.

Part 2

Evaluate whether each of the following statements is true or false. Explain your answer and provide a supporting rationale, using graphs to support your answer. You can create graphs by hand and take pictures and upload them with your answers, or you may use Word or Excel, and upload the file created by these software packages.

a.If the real money demand is greater than the real money supply, interest rates must rise to reach equilibrium in the money market as institutions sell bonds to obtain more money.

b.The federal government's control of the money supply, which influences interest rates, is the primary tool that policymakers use to impact the macroeconomy.

c.A decrease in the reserve requirement decreases the money supply because banks have fewer reserves.

d.The real money demand curve shows how households and businesses change their spending in response to changes in the interest rate.

e.Both an increase in the nominal money supply by the Federal Reserve and an increase in the price level will cause the real money supply curve to shift to the right.

yellowseal739

A. In a small open economy in a flexible exchange rate system with perfect capital mobility, there is complete ________ crowding-out of ________ policy.

a) domestic, monetary

b) domestic, fiscal

c) international, fiscal

d) international, monetary

B. If the dollar depreciates against the yen, this tends to ________ our imports of Japanese goods and ________ our exports of goods to Japan, so that our net exports ________.

a) decrease, decrease, decrease

b) increase, decrease, are unchanged

c) decrease, increase, increase

d) decrease, increase, are unchanged

E) increase, increase, increase

C. An increase in the nominal money supply will shift

a) AD up and raise the price level.

b) SAS down and lower the price level.

c) SAS up and raise the price level.

d) AD down and lower the price level.

D. A rise in the price level causes

a) movement down along an LM curve.

b) movement up along an LM curve.

c) the LM curve to shift downward.

d) the LM curve to shift upward.

plumminnow211

ECO100Y5 Chapter Notes - Chapter 23: Pearson Education, Aggregate Demand, Aggregate Supply

ECO100Y5 Full Course Notes

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