ECON 1010 Chapter Notes - Chapter 28: Aggregate Supply, Aggregate Demand, Potential Output

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24 Jul 2016

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Inflation is a monetary phenomenon in the long run that occurs if the quantity of money grows faster than potential gdp. Demand-pull inflation and cost-push inflation are two factors that can start inflation in the short run. Demand-pull inflation can be started by any of the factors of aggregate demand (tax cuts, increase in exports, cut in the interest rate etc. The only way aggregate demand can persistently increase is if the quantity of money persistently increases. In that case: the aggregate demand curve keeps shifting rightward, puts a continual upward pressure on the price level, money wage rate rises, and decreases short run aggregate supply. Cost-push inflation can be started by: an increase in the money wage rate, an increase in the price of raw materials. *at any given price level, the higher the cost of production, and the smaller the amount firms are willing to produce.

Related Questions

If we observe an increase in real GDP and an increase in the price level after an increase in aggregate demand, we can conclude that

A. the aggregate supply curve is upward sloping.

B. the economy is now at full employment.

C. the aggregate supply curve is vertical.

D. the aggregate supply curve is horizontal.

An inflationary gap occurs when

A. the equilibrium level of real GDP is greater than the long-run aggregate supply curve.

B. short-run aggregate supply falls, but other things remain constant.

C. the equilibrium level of real GDP is less than the long-run aggregate supply curve.

D. aggregate demand falls, but other things remain constant.

Cost-push inflation is

A. inflation caused by decreases in aggregate supply that are not matched by decreases in aggregate demand.

B. inflation caused by decreases in aggregate supply that generate an even larger decrease in aggregate demand.

C. inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply.

D. inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply.

A stronger dollar in world exchange markets is shown by

A. a dollar buying less units of foreign currency than it could before.

B. a dollar buying more units of foreign currency than it could before.

C. a dollar buying the same amount of foreign currency than it could before, with gold backing up the value of the dollar.

D. foreigners selling the dollars that they have.

redseal200

A. A decrease in aggregate supply can result in:

a recession
cost-push inflation
demand-pull inflation
unemployment

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

the price level but reduce real GDP.
real GDP without raising the price level
the price level without affecting real GDP
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?

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

carminewasp285

Question 2

For any given expected inflation rate, short-run aggregate supply curves show the relationship between

the money supply and growth rate of output.

inflation and growth rate of output.

production factors and wages.

inflation and wages.

1 points

Question 3

Why is the SRAS curve steeper above its intersection with the Solow growth curve?

		Wages are stickier in the upward direction.
		Wages are less sticky in the upward direction.
		Lower inflation will lead to faster growth.
		Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

What factors triggered the Great Depression?

		decreased consumer spending and tight monetary policy
		decreased investment and increased inflation
		decreased employment and increased money supply
		decreased inflation and increased income taxes

1 points

Question 5

How might changes in the money supply be non-neutral in the short run?

		As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.
		When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.
		As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.
		If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

remain relatively constant.

increase.

decrease.

become unpredictable.

Question 8

Which of the three price indexes measures the average price level of the largest total number of goods?

		the consumer price index
		the GDP deflator
		the producer price index
		Each price index accomplishes the same task.

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ECON 1010 Chapter Notes - Chapter 28: Aggregate Supply, Aggregate Demand, Potential Output

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Related Questions

		the money supply and growth rate of output.
		inflation and growth rate of output.
		production factors and wages.
		inflation and wages.