ECON 203 Lecture Notes - Lecture 16: Xm Satellite Radio, Aggregate Demand, Aggregate Supply

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taupewhale437

2 May 2017

School

Department

Economics

Course

ECON 203

Professor

Martin Bolen

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Last week of class will be review: no need to attend if not taking the final exam. The curve that shows the level of real gdp purchased by households (c), firms (i), government (g), and the rest of the world (nx) at different price levels. The vertical axis measures the average price of goods and services on the economy using the cpi (won"t be tested on) The horizontal axis measures the value of gdp. (won"t be tested on) Decrease in the price level: increase in the real gdp demanded. Increase in the price level: decrease in the real gdp demanded. Why does the aggregate demand curve slope downward to the right? i. Consumption (c) (c+i+g+nx) = ad and vice-versa. Buying power of dollars obviously goes down when the price of something increases. Inverse relationship between price level and aggregate demand.

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

1. In an economy with no foreign trade and a marginal propensity to consume of 0.8, which of the following will be true?

a. If taxes are increased by $100M, GDP will decrease by $500M.

b. If autonomous consumption increases by $50M, GDP will increase by $200M.

c. If both taxes and government spending increase by $100M, GDP will increase by $250M.

d. If taxes are decreased by $100M, GDP will increase by $400M.

e. If autonomous consumption decreases by $100M, GDP will decrease by $800M.

2. Looking at the circular flows model, how can the saving equals investment equation be derived?

a. By looking at flows into and out of goods markets

b. By looking at flows into and out of financial markets

c. By looking at flows into and out of households

d. By looking at flows into and out of firms

e. By looking at flows into and out of the government

3. What will be the short-run effect of a 10% increase in the money supply for an economy operating in the Keynesian portion of the aggregate supply curve?

a. Real GDP will increase by 10% if velocity doesn't change.

b. Real GDP and the price level will both increase by 5% if velocity doesn't change.

c. Real GDP won't change, but the price level will increase by 10% if velocity doesn't change.

d. Velocity will fall by 5%, the price level will increase by 5%, and real GDP won't change.

e. According to the quantity theory of money, velocity will fall by 10%, and nothing else will change

4. Which of the following will make monetary policy more effective in changing nominal GDP?

a. A fixed velocity of money

b. A flat investment demand curve

c. A high marginal propensity to save

d. A money demand curve that is very flat

e. An aggregate expenditure curve that is very flat

amethystworm634

1. Which of the following shifts aggregate demand to the right?
a. Congress reduces purchases of new weapons systems.
b. US exports increase.
c. The price level falls
d. New developments in IT increase the productivity of most manufacturing industries in the US.

2. Suppose the EPA introduces new smog regulation that makes it costlier to produce cars. As a result, aggregate supply falls (primary effect) and firms cut back on production. With less output in the economy available for consumers, consumers bid up the prices of available output. With higher prices, firms choose to produce more (secondary effect).
Which of the following best explains what the net effect on GDP?
a. The two effects should essentially cancel out, with little to no effect on GDP, but the price level clearly rises.
b. It is impossible to say what happens to GDP without being able to compare the magnitudes of the two effects.
c. Real GDP rises as the secondary effect dominates the primary effect.
d. Real GDP falls since the primary effect dominates the secondary effect.

3. A Keynesian economist who observes an output gap would conclude that
a. aggregate demand should be shifted to the right.
b. a policy of deregulation would be better than demand management policy
c. aggregate supply should be shifted to the right
d. All proposed answer options are correct

4. Monetarists believe
a. the Aggregate Supply curve is upward-sloping (but not vertical) over all time frames.
b. the Aggregate Supply curve can be treated as horizontal in the long run (over 10 years
c. the Aggregate Supply curve is vertical only in the very long run (over 20 years).
d. the Aggregate Supply curve can be treated as vertical in the short-to-medium run (1-2 years)

5. Suppose the price of oil increases due to conflict in the Middle East. How will this be illustrated in the AD-AS model?
a. The aggregate demand curve will shift to the left
b. The aggregate supply curve will shift to the left.
c. The aggregate demand curve will shift to the right
d. The aggregate supply curve will shift to the right

6. Assume a Keynesian AS curve. In the short run, when there is a large output gap
a. contractionary demand management policy is likely to be highly inflationary
b. expansionary demand management policy does not cause much inflation.
c. expansionary demand management policy is likely to be highly inflationary
d. the government should use contractionary demand management policy

7. As a result of Bush tax cuts that partially expired in January 2013, the marginal tax rates for some households increased and these households paid higher taxes. Which of the following would be the best description of the tax cut expiration?
a. Rightward shift in AS
b. Rightward shift in AD
c. Leftward shift in AD
d. Leftward shift in AS

8. Suppose that the U.S. government increases income taxes on individuals earning more than $500,000/year and uses the revenue from this tax increase to subsidize the cost of energy for businesses. How will this policy change affect the U.S. economy?
a. The effect on output is ambiguous but price level will decrease for sure
b. The effect on both output and price level is ambiguous.
c. The effect on price level is ambiguous but output will increase for sure
d. The effect on price level is ambiguous but output will decrease for sure

9. If Australia, which imports goods from the United States, went into recession, we would expect that U.S. net exports would
a. rise, making aggregate demand shift right.
b. rise, making aggregate demand shift left
c. fall, making aggregate demand shift left
d. fall, making aggregate demand shift right

10. Suppose that Greece decides to exit the European Union and the Euro Zone, causing a boost in business confidence in European markets. How would you illustrate the primary effect of Greeceâs decision in the AD-AS model for the EU economy?

Note: for this question, assume that Y in the AD-AS model represents output (GDP) of EU member countries without Greece.
a. a shift in the aggregate supply curve to the left and a shift in the aggregate demand curve to the left
b. a shift in the aggregate demand curve to the right
c. a shift in the aggregate demand curve to the left
d. movement along the aggregate demand curve to the left

11. The Austrian school of thought believes that demand management policy should not be used because
a. big government prefers deregulation, which shifts aggregate supply
b. the economy is always at full employment
c. shifting AD to the right is likely to cause deflation
d. big government has a bias towards inflationary policy

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ECON 203 Lecture Notes - Lecture 16: Xm Satellite Radio, Aggregate Demand, Aggregate Supply

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