3. Explain how each of the following will affect aggregate demand. In each case, draw a diagram to show the effect on the aggregate demand curve. (a) Negative economic indicators cause firms to become pessimistic about the future of the economy. (b) Banks become complacent and begin taking on riskier business loans at lower interest rates. (c) The government passes legislation that increases the rate of corporate taxes. (d) Inflation leads the central bank to increase the base interest rate.

3. Explain how each of the following will affect aggregate demand. In each case, draw a diagram to show the effect on the aggregate demand curve. (a) Negative economic indicators cause firms to become pessimistic about the future of the economy. (b) Banks become complacent and begin taking on riskier business loans at lower interest rates. (c) The government passes legislation that increases the rate of corporate taxes. (d) Inflation leads the central bank to increase the base interest rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A vertical long-run aggregate supply curve shows that:(a) wages and prices are sticky.(b) changes in technology do not affect the productive capacity of the economy.(c) the availability of resources does not affect the productive capacity of the economy.(d) changes in the price level do not affect the full employment productive capacity of the economy
11. Recession True or False: The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods. True False
1. The long-run aggregate supply curve reflects the amount of potential production when we are in full employment.Answer: True False 2. Long-term macroeconomic equilibrium occurs when short-term aggregate supply intercepts aggregate demand and long-term aggregate supply at the same point.Answer: True False 3. An economic cycle is the periodic but irregular movement of ups and downs in production; and is measured by fluctuations in nominal GDP.Answer: True False
1. What is the difference between the long-term aggregate supply and the short term supply? (also diagrammatically) 2. New Supply - how do we measure it? How can we calculate it (example/ exercise)?
34) Unemployment would increase and prices would decrease if aggregate demand shifted left aggregate demand shifted right aggregate supply shifted left aggregate supply shifted right
(21) Assume that the economy begins in long run equilibrium and the central bank increases the target interest rate. In the long run, what happens to the level of GDP? Group of answer choices (A) It goes down (B) It goes up (C) It stays the same
Question 1. Explain why the Aggregate Demand curve is downward sloping . 2. Explain why the Aggregate Supply curve is upward sloping . 3. What determines potential output Yf, and how can the economy exceed Yf in the short run? 4. Explain the Equilibrium condition of Aggregate Expenditure= output Y. How are inventory changes related to AE and Y? 5. Define the multiplier and the marginal propensities to consume (MPC) and save (MPS). What is the relationship between the MPC and the multiplier? 6. Compare and contrast the short run Keynesian and long run Neoclassical views of the aggregate supply and Phillips curves 7. For each the following economies, calculate equilibrium Y*, the multiplier, and the size of the recessionary or inflationary gap, if any. a. AE= 250 +.75 Y Yf= 1200 b. AE= 400+ .9 Y Yf= 3000 c. AE= 300 +. 8Y Yf=1500 d. AE= 300+ .67 Y Yf=1000
Assume that the United States is currently in a recession. a. Draw a correctly labelled graph of aggregate demand and aggregate supply showing each of the following in the United States: i. Output level ii. Price level A
1. How is the aggregate demand curve different from the demand curve for a single good, like hamburgers?
24. If the short-run aggregate supply increases by less than the long-run aggregate supply, then, at the short-run equilibrium, A) GDP will be below potential GDP. B) aggregate demand will increase. C) GDP will be above potential GDP. D) GDP will be equal to the potential GDP 25. A negative supply shock in the short run causes A) the aggregate supply curve shifts to the left. B) the price level to fall. C) unemployment to fall. D) equilibrium real GDP to rise.
1. As the aggregate demand curve shifts to the right: A)the price level falls and real GDP rises. B) the price level and real GDP both fall. C) the price level and real GDP both rise. D) the price level rises and real GDP falls .