Ch.12

Question 1

Aggregate Demand

Answer 1

relationship b/w aggregate price level and quantity of aggregate output (GDP)

Question 2

Aggregate Supply is equal to

Answer 2

GDP

Question 3

GDP is the

Answer 3

supply

Question 4

C+I+G+X-IM is the

Answer 4

demand

Question 5

Y is the

Answer 5

income

Question 6

Short Run Aggregate Supply

Answer 6

wages are sticky, slow to adjust

Question 7

Long-Run Aggregate Supply

Answer 7

wages fully flexible

Question 8

Supply is function of

Answer 8

Profits
EX: Profits increase then Supply increase

Question 9

Factors that shift AS Curve

Answer 9

• input prices
  -nominal wages
  -productivity

Question 10

AS shifts right when

Answer 10

-input prices decrease, profits increase, GDP increase
-wages decrease, profits increase, GDP increase
-productivity increase, profits increase, GDP increase

Question 11

AS shifts left when

Answer 11

-input increase, profits decrease, GDP decrease
-wages increase, profits decrease, GDP decrease
-productivity decrease profits decrease, GDP decrease

Question 12

Recessionary Gap

Answer 12

-economy in recession
-unemployment high
-overtime high unemployment then low wages then SRAS shifts right
-YA increase when it equals to YP

Question 13

Inflationary Gap

Answer 13

-economy overheating
-unemployment low
-overtime wages increase then SRAS shifts left
-YA decrease when it equals to YP

Question 14

3 Factors that shift LRAS

Answer 14

-physical capitol
-human capitol
-technology

Question 15

in LRAS, if profit increases then

Answer 15

AS increases

Question 16

In LRAS, if profit decreases then

Answer 16

AS decreases

Question 17

In LRAS if profits remain the same then

Answer 17

AS also remains the same

Question 18

if LRAS shifts

Answer 18

its bc of economic growth

Question 19

Potential Output

Answer 19

level of gdp in long run

Question 20

Wealth Effect

Answer 20

Agg price level increases, purchasing power decreases, GDP decreases

Question 21

Interest Rate Effect

Answer 21

Agg price level increases, purchasing power decreases, savings decreases

Question 22

5 Factors that shift AD

Answer 22

-expectation
-wealth
-fiscal policy
-monetary policy

Question 23

Effects of fiscal policy

Answer 23

G, Taxes, Transfers increases then GDP increases

Question 24

Effects of monetary policy

Answer 24

MS increases, interest rate decreases, GDP increases
MS decreases, interest rates increase, GDP decreases

Question 25

SRAS shifts right when

Answer 25

Input prices and wages decrease then GDP increases
Productivity increases, then GDP increases

Question 26

SRAS shifts left when

Answer 26

input prices and wages increase then GDP decreases
productivity decreases then GDP decreases

Question 27

if PE decreases and GDP increases it creates

Answer 27

deflation and economic growth