CoreMicroEconomics_CH_9

Question 1

Aggregate demand

Answer 1

The output of goods and services (read GDP) demanded at different price levels. PG. 199

Question 2

Macroeconomic equilibrium

Answer 2

Occurs at the intersection of the short-run aggregate supply and aggregate demand curves. At this output level, there are no net pressures for the economy to expand or contract. Pg 207

Question 3

Aggregate supply

Answer 3

The real GDP that firms will produce at varying price levels. In the short run, aggregate supply is positively sloped because many inputs costs are slow to change, but in the long run, the aggregate supply curve is vertical at full employment since the economy has reached its capacity to produce. Pg. 203

Question 4

Cost-push inflation

Answer 4

Results when a supply shock hits the economy, reducing short-run aggregate supply, and thus reducing output and increasing the price level. Pg. 210

Question 5

Demand-pull inflation

Answer 5

Results when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises. Pg. 209

Question 6

Long-run aggregate supply (LRAS) curve

Answer 6

The long-run aggregate supply curve is vertical at full employment because the economy has reached its capacity to produce. Pg. 204

Question 7

Aggregate expenditures

Answer 7

Consist of consumer spending, business investment spending, government spending, and net foreign spending (exports minus imports): GDP = C + I + G + (X - M). Pg. 199

Question 8

Marginal propensity to consume

Answer 8

The change in consumption associated with a given change in income (DC/DY) Pg. 208

Question 9

Marginal propensity to save

Answer 9

The change in saving associated with a given change in income (DS/DY) Pg. 208.

Question 10

Multiplier

Answer 10

Spending changes alter equilibrium income by the spending change times the multiplier. One person’s spending becomes another’s income, and that second person spends some (the MPC), which becomes income for another person, and so on, until income has changed by 1/(1-MPC) = 1/MPS. The multiplier operates in both directions. Pg. 207

Question 11

Short-run aggregate supply (SRAS) curve

Answer 11

The short-run aggregate supply curve is positively sloped because many input cost are slow to change in the short run. Pg. 203

Question 12

Wealth Effect

Answer 12

Families usually hold some of their wealth in financial assets such as saving accounts, bonds, and cash, and a rising aggregate price level means that the purchasing power of this money wealth declines, reducing output demand.