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EC140 Chapter Notes - Chapter 23: Aggregate Demand, Autonomous Consumption, Autarky

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indigomuskrat528
14 Nov 2017
School
WLU
Department
Economics
Course
EC140
Professor
Ken Jackson

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EC140 Full Course Notes
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Document Summary

Ec140: chapter 23: output and prices in the short run. Changes in exports: when the domestic price level rises, canadian goods become more expensive relative to foreign goods, consumers in other countries reduce their purchases of canadian made goods, therefore exports decline. Derivation of the ad curve (aggregate demand: as the price level rises, the ae curve shifts downward, a change in the price level causes a shift of the ae curve but a movement along. In the bottom graph, a movement occurs up along the ad curve the ad curve: higher prices = lower output. Summary: aggregate demand: an increase in p reduces the real gdp because, consumption falls, exports. In a closed economy: an increase in p reduces the real gdp because: consumption falls, ad is steeper in closed economies because the price level has a smaller effect on output. In closed economies only consumption changes, whereas in open economies consumption and net exports adjust.

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Related Questions

A. A decrease in aggregate supply can result in:

  1. a recession
  2. cost-push inflation
  3. demand-pull inflation
  4. unemployment 

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

  1. the price level but reduce real GDP.
  2. real GDP without raising the price level
  3. the price level without affecting real GDP
  4. 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?

  1. As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services
  2. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services
  3. As prices fall, the government will have to reduce taxes, which will lead to an increase in the number of goods and services purchased
  4. 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

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

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.