Chapter 9

Question 1

the four macroeconomic markets

Answer 1

goods and services market, resource market, loanable funds market, foreign exchange market

Question 2

what does the aggregate demand curve show?

Answer 2

shows the various quantities of domestically produced goods and services purchasers are willing to buy at different prices

Question 3

why does the aggregate demand curve slope down?

Answer 3

1. the real balance effect (lower price level = higher purchasing power of money)
2. the interest (portfolio) effect (lower price level -> lower real interest rate -> more consumer purchases)
3. relative price for exports and imports changes (domestic prices will be cheaper relative to foreign goods)

summary: a lower price level will (1) increase the purchasing power of money, (2) lower interest rates, and (3) reduce the price of domestically produced goods relative to goods produced abroad

Question 4

what does the aggregate supply curve show?

Answer 4

shows the various quantities of goods and services that domestic suppliers will produce at different price levels

when the price level rises, the prices of all goods rise, rather than the price of one good relative to other goods

Question 5

short-run aggregate supply

Answer 5

doesn’t anticipate inflation; slopes upward bc higher product prices will improve profit margins

Question 6

long-run aggregate supply

Answer 6

after business people have adjusted shit for inflation; vertical -> indicates that a change in price doesn’t change the production possibilities; =potential GDP

Question 7

real interest rate

Answer 7

real interest rate = money interest rate - inflationary premium

Question 8

when does macroeconomic equilibrium occur?

Answer 8

when all four markets are in equilibrium and are in harmony w/each other (5H after Camilla left fr)

Question 9

goods and services market

Answer 9

sometimes called the product market; businesses supply goods and services in exchange for sales revenue

Question 10

resource market

Answer 10

includes the markets for labor services, natural resources, and physical capital; households supply labor and other resources for income

Question 11

loanable funds market

Answer 11

the market in which money is borrowed and loaned; the price in the loanable funds market is the interest rate

Question 12

foreign exchange market

Answer 12

determines the rate/price at which two countries’ currencies are exchanged (bc firms generally want to be paid in their local currency)