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20 Cards in this Set
- Front
- Back
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GDP |
Recall the four components of GDP: consumption (C), investment (I), government purchases (G), and net exports (NX).
Y stands for GDP Y=C + I + G + NX |
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Why is Aggregate Demand Curve Downward Sloping |
A fall in the price level increases the quantity of real GDP demanded |
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Variables that shift the Aggregate Demand Curve |
-Changes in government policy -Changes in expectations of households and firms -Changes in foreign variables |
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*The Aggregate demand curve slopes downward for all of the following reasons except |
A lower price level makes imports from other countries less expensive, and U.S. citizens buy more imports |
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*Increases in personal income taxes or business taxes will make the aggregate demand curve shift _____. |
To the Left |
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The long-run aggregate supply curve is vertical because on the long run, |
Changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology |
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*More capital accumulation will cause the long-run aggregate supply curve to... |
Shift to the Right |
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*The short-run aggregate supply curve slopes upward because of all of the following reasons except |
In the short run, an unexpected change in the price of an important resource can change the cost to firms |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. *The SRAS curve will ________________ if there is an increase in the labor force or capital accumulation. |
Shift to the Right |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. *The SRAS curve will ________________ if there is an increase in productivity |
Shift to the Right |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. *The SRAS curve will ________________ if there is a technological change |
Shift to the Right |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. * The SRAS curve will ________________ if there is an increase in the expected price if an important natural resource. |
Shift to the Left |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. * The SRAS curve will ________________ if there is an increase in the adjustment of workers' and firms' prior underestimation of the price level |
Shift to the Left |
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Consider the following cases to figure out which one of the following variables causes the short-run aggregate supply curve to shift, and identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left. * The SRAS curve will ________________ if there is an increase in expected future prices. |
Shift to the Left |
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*Which of the following is NOT true when the economy is in macroeconomic equilibrium? -When the economy is at long-run equilibrium, SRAS=AD=LRAS -When the economy is at long-run equilibrium, actualy GDP = potential GDP -When the economy is at long-run equilibrium, total employment = frictional unemployment + structural unemployment -When the economy is at long-run equilibrium, firms will have excess capacity |
-When the economy is at long-run equilibrium, firms will have excess capacity |
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*A sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve
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A supply shock |
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*A combination of inflation and recession |
Stagflation |
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* What occurs when a supply shot shifts the SRAS to the left, increasing the price level and decreasing actual GDP? |
*Stagflation occurs |
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*In the short run, an increase in aggregate demand increases ____________, ____________ & beyond _______________, whereas in the long run, an automatic mechanism brings the economy back to ______________, but the price level remains higher |
Price level, Actual GDP, & Potential GDP potential GDP |
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*Assume that there is a large increase in demand for U.S. exports. Aggregate demand will shift (left or right) -Now consider the adjustment of the economy back to the long-run equilibrium, SRAS shifts (left or right) -At the new short run equilibrium, the unemployment rate will be (lower or higher) compared to the unemplohment rate at the initial equilibrium, prior to the increase in exports. |
To the Right To the Left Be lower |
