←Consider the figure to the right. What are the three effects of decreases in theprice level, and do these generate upward or downward movements along theeconomy's aggregate demand curve?The three effects of changes in the price level areA. the real-balance effect, the income effect, and the wealth effect.B. the substitution effect, the income effect, and the wealth effect.ⒸC. the real-balance effect, the interest rate effect, and the open economyeffect.OD. the real-balance effect, the interest rate effect, and the wealth effect.When the price level falls, these three effects work together to generatedownward movements along the economy's aggregate demand curve.4Price Level12011511016 17 18Real GDP per Year (3 trillions)AD

Aggregate demand refers to the total of all planned expenditures in the entire economy. The key word…

Consider the figure to the right. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve? The three effects of changes in the price level are A. the real-balance effect, the income effect, and the wealth effect. B. the substitution effect, the income effect, and the wealth effect. C. the real-balance effect, the interest rate effect, and the open economy effect. OD. the real-balance effect, the interest rate effect, and the wealth effect. When the price level falls, these three effects work together to generate downward movements along the economy's aggregate de and curve. 4 Price Level 120 115 ********* 110

Consider the figure to the right. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve? The three effects of changes in the price level are A. the real-balance effect, the income effect, and the wealth effect. B. the substitution effect, the income effect, and the wealth effect. C. the real-balance effect, the interest rate effect, and the open economy effect. OD. the real-balance effect, the interest rate effect, and the wealth effect. When the price level falls, these three effects work together to generate downward movements along the economy's aggregate de and curve. 4 Price Level 120 115 ********* 110

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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E1
R The model of aggregate demand/aggregate supply... O Identifies the equilibrium GDP and price level as well as the gap between the equilibrium GDP and the potential GDP Identifies the potential GDP and price level as well as the gap between the price level and the inflation. O Identifies the equilibrium GDP the economy will reach in the long A run O Identifies the equilibrium quantity and price for consumer goods 10 % 5 T 6 O Y Com liji fa 887 & 7 7 U 8 4 f10 num lk. 8 ( 5 9 開

3. Explain whether each of the following events will increase, decrease, or have no effect on longrun aggregate supply in your country. a. There is an increase in immigration into your country. b. Your government introduces a minimum wage above the market-clearing wage rate. c. Intel invents a new and more powerful computer chip. d. A severe flood damages factories.
Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, a shift in neither curve, or shift in both curves. If a shift is caused, indicate which curve shifts, and in which direction it shifts. What happens to aggregate output and the price level in each case? 4. The wages rate decreases.
What is the effect of an increase in the price level when the money wage rate remains unchanged? A. Aggregate supply increases. B. Potential GDP increases. C. The quantity of real GDP supplied increases. D. Resource prices increase by the same percentage as the increase in the price level.
You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. 1. What is the fed trying to do?A. slow down the economyB. stimulate the economyC. remains unchanged 2. How is the fed doing it?A. buying bondsB. selling bondsC. remains unchanged 3. What happens to bond prices?A. increaseB. decreaseC. remains unchanged 4. What happens to the interest rate?A. increaseB. decreaseC. remains unchanged
According to Say's law, aggregate demand is always equal to aggregate supply. O True O False
3. Under what circumstances an aggregate demand curve would shift either to the right or left? Provide some real world examples.