ECON1102 Lecture Notes - Lecture 10: Real Interest Rate, Aggregate Demand, Aggregate Supply
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Gdp demanded by household, firms and the government. The ad curve v market demand curves: ad curve is built up from the demand expenditures side of the whole economy . C+i+g+nx and in this sense, represents a short run balance across these components across all micro-markets for goods and services. But the ad curve may shift left or right as well. This would be the case (cid:449)he(cid:374) a(cid:374) e(cid:454)oge(cid:374)ous (cid:862)shock(cid:863) occurs: variables that shift the aggregate demand curve include, changes in government policies. Taxes, government purchases: changes in the expectations of households and firms, changes in foreign variables in economies outside the domestic economy relative income levels between countries. Aggregate supply: lras, curve that shows the relationship between the price level and the quantity of real gdp supplied. In the lr, increases in the price level do not affect the level of real gdp. In the lr, the classical dichotomy holds and price levels/inflation do not affect real.
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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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