ECN 204 Lecture Notes - Lecture 10: Potential Output, Aggregate Demand, Shortage

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blackbuffalo225

4 Apr 2016

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Document Summary

A change in money wage rate, e. g. through a union. We can have an increase and then because of this, supply of the economy (because they ask for higher wages) the employer will have lower profit. Overall there is no change in total income; in macro higher wages does not mean higher demand. Instead it"s the cost of production that increases, lower profit will then give lower supply. The wages affect the as curve; it will shift it to the left. But this change in the wage rate does not change the potential gdp. Other things can such as better resources or technology etc. But if there is a higher potential gdp then it will shift the curve to the right. In the exam she will ask what happens if there is a decrease in the potential gdp, what will happen to short run and long run supply. The decrease can happen e. g. because of natural disasters.

Related Questions

1) If actual (equilibrium ) real GDP is less than the full-employment, or natural, level of real GDP, then wages and other input prices are expected to:

a. fall and SRAS to shift to the left until long-run equilibrium is achieved.

b. fall and SRAS to shift to the right until long-run equilibrium is achieved.

c. rise and SRAS to shift to the left until long-run equilibrium is achieved.

d. rise and SRAS to shift to the right until long-run equilibrium is achieved.

2) In a self-regulating economy, inflationary gaps are automatically eliminated in the long run by:

a. decreases in wage rates that cause short-run aggregate supply to shift rightward.

b. decreases in wage rates that cause short-run aggregate supply to shift leftward.

c. increases in wage rates that cause short-run aggregate supply to shift rightward.

d. increases in wage rates that cause short-run aggregate supply to shift leftward.

3) Assume the economy is initially in equilibrium at the full-employment level of real GDP. If businesses and consumers become pessimistic regarding future economic conditions, ceteris paribus, the aggregate demand curve will shift to the ________, causing the level of output to ______.

a. left; fall

b. right; fall

c. left; rise

d. right; rise

4) Economists that advocate a macroeconomic policy of laissez-faire:

a. believe the economy is self-regulating only if the government intervenes to move the economy to equilibrium at natural real GDP.

b. believe the economy is self-regulating and will automatically move to equilibrium at natural real GDP in the long run.

c. also advocate central planning and government control of resources.

d. also advocate active government intervention in the economy.

5) Which of the following summarizes the process for closing a recessionary gap if the economy is self-regulating?

a. Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short-run aggregate supply.

b. Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand.

c. Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending, and increases in aggregate demand.

d. Unemployed resources put downward pressure on the price level, which leads to lower costs of production and an increase in short-run aggregate supply.

cyanmallard742

In the Keynesian model

aggregate demand determines real GDP per year.

the short-run aggregate supply curve determines real GDP.

unemployment cannot persist for long periods of time.

the aggregate demand curve determines the price level.

A terrible winter storm causes enormous problems in the

northeastern

part of the United States. This would cause

the short-run aggregate supply curve to shift to the left, but would have no effect on the long-run aggregate supply curve.

both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right.

both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts.

Equilibrium real GDP rises after the dollar strengthened. From this we can conclude that

the increase in aggregate demand was greater than the decrease in aggregate supply.

the decrease in aggregate demand was more than the increase in aggregate supply.

the decrease in aggregate demand was less than the increase in aggregate supply.

the increase in aggregate demand was less than the decrease in aggregate supply.

Saving is

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and serviceswhile savings is the difference between real GDP and disposable income.

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

A permanent reduction in investment spending leads to

a proportional decrease in real GDP.

a more than proportional decrease in real GDP.

a more than proportional increase in real GDP.

a less than proportional decrease in real GDP.

An increase in net exports leads to an increase in real GDP. Further,

consumption spending increases while investment spending decreases.

consumption spending increases but saving does not change.

consumption spending and saving increase.

government spending decreases to offset the increase in net exports.

An increase in aggregate spending that is caused by a factor other than the price level will lead to the

aggregate demand curve shifting to the right.

aggregate supply curve shifting to the right.

aggregate supply curve shifting to the left.

aggregate demand curve shifting to the left.

The marginal propensity to consume is 0.9. The multiplier is

0.9.

1.11.

0.1.

10.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

real GDP increases.

the price level rises

the price level falls.

real GDP decreases.

Other things equal, the lower the total real value of final goods and services demanded in the economy the

more the production possibilities cure shifts to the left.

lower the price level.

higher the price level.

lower the level of endowments.

The long-run aggregate supply curve can be thought of as the

level of output for which real GDP equals nominal GDP.

level of output that the nation is currently producing.

level of real GDP associated with a constant price level.

full-employment level of real GDP.