ECO100Y1 Lecture 16: lecture 16-8
24 views2 pages
Document Summary
Expansionary ad shocks: the adjustment in wages and other factor prices eventually eliminates any boom caused by a demand shock; real gdp returns to its potential level. Explanation: a positive ad shock (initially at potential gdp, then ad moves to right) first raises prices and output along the as curve (which causes inflationary gap). It then induces a shift of the as curve that further raises prices but lowers output (as shifts to left because wages get higher) along the new. Ad curve (and back to potential gdp level). Contractionary ad shocks: flexible wages that fall rapidly in the presence of a recessionary gap provide an automatic adjustment process that pushes the economy back quickly toward potential output. Aggregate supply shocks: exogenous changes in input prices cause the as curve to shift, creating an output gap. The adjustment process then reverses the initial as shift and brings the economy back to potential output and the initial price level.
Get access
Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers
Related textbook solutions
Related Documents
Related Questions
A.
| If membership falls in labor unions and unions become less popular, then: | |||||||||
|
B.
| If the short-run macroeconomic equilibrium is _________ of the economy's potential output, then there is a(n) ________ and the aggregate price level is expected to ________. | |||||||||
|
| 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.
|
| b) | The LRAS curve is drawn as a vertical line at potential output (Y*) to indicate that
|
| c) | Stagflation arises in the context of the AD-AS model when some external factor causes
|
| 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.
|
| e) | Which of the following will shift the aggregate demand curve to the right?
|
| 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?
|
| 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
|
| 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.
|
| i) | The aggregate demand curve shows
|
| 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 __________.
|
