ECON CH 13

Question 1

Aggregate demand

Answer 1

the total demand for goods and services in the economy

Question 2

AD curve

Answer 2

a curve that shows the negative relationship between aggregate output (income) and overall price level

Question 3

AD shifters

Answer 3

1. gov spending
2. net taxes
3. MS

Question 4

shifts AD curve to right

Answer 4

an expansionary monetary policy (increase in MS) does what to the AD curve

Question 5

shifts AD curve to the right

Answer 5

an expansionary fiscal policy (increase in G or decrease in G) shifts the AD where

Question 6

AD up

Answer 6

exp: G up, T down, MS up

Question 7

AD down

Answer 7

cont: G down, T up, MS down

Question 8

aggregate supply

Answer 8

the total supply of all goods and services in the economy

Question 9

AS curve

Answer 9

a graph that shows the relationship between aggregate quantity of output supplied by all firms (Y) in an economy and the overall price level

Question 10

positive slope

Answer 10

in the SR the AS curve has what type of slope

Question 11

fairly flat

Answer 11

at low levels of aggregate output (recession) the AS curve is what

Question 12

vertical

Answer 12

in the LR, at potential (full employment), the AS curve is what

Question 13

only by raising prices (not output)

Answer 13

as the economy approaches max capacity, firms respond to further increases in demand by doing what to prices

Question 14

1. a cost shock (or supply shock) is a change in costs that shifts the AS curve
2. factors that affects the economic growth of the economy
3. economic policies (supply-sided, deregulations)

Answer 14

shifts in SR-AS curve can be caused by 3 things

Question 15

cost shock or supply shock

Answer 15

a change in costs that shifts the SR-AS curve

Question 16

equilibrium price level

Answer 16

is the point at which AD and AS curves intersect

Question 17

LR-AS

Answer 17

a vertical line that shows the potential (natural) level of output (GDP) the economy can produce without inflation

Question 18

by higher AD

Answer 18

for short periods of time, output can be pushed above potential level by what

Question 19

expansion

Answer 19

above LR

Question 20

recession

Answer 20

below LR

Question 21

1. changes in the economy (cost shocks)
2. effects of fiscal policy
3. effects of monetary policy
4. effects of international trade policies

Answer 21

the AS/AD framework (model) can be used to analyze (4)

Question 22

AD shift to right

Answer 22

expansionary policy: an increase in MS, tax cuts, or an increase in gov spending does what to AD curve

Question 23

when AS curve is vertical

Answer 23

neither monetary policy nor fiscal policy has any effect on output when AS curve is what

Question 24

inflation

Answer 24

an increase in the overall price level

Question 25

sustained inflation

Answer 25

occurs when the overall price level continues to rise over a fairly long period of time

Question 26

1. demand pull inflation 2. cost push inflation 3. inflation triggered by expectations 4. inflation as monetary phenomenon

Answer 26

4 causes of inflation

Question 27

demand pull inflation

Answer 27

inflation initiated by an increase in aggregate demand

Question 28

cost push or supply side, inflation

Answer 28

inflation caused by an increase in production costs

Question 29

hyperinflation

Answer 29

a period of very rapid increases in the price level

Question 30

shifts the AS curve to the left

Answer 30

sn increase in inflationary expectations shifts the AS curve where