Podcast
Questions and Answers
What shift in aggregate demand would likely result from an increase in the quantity of money in circulation?
What shift in aggregate demand would likely result from an increase in the quantity of money in circulation?
- Increase in overall spending (correct)
- No change in demand
- Increase in saving rates
- Decrease in overall spending
In the short-run macro equilibrium, which condition must be true?
In the short-run macro equilibrium, which condition must be true?
- AD intersects with LRAS
- Real GDP demanded equals real GDP supplied (correct)
- Real GDP exceeds potential GDP
- Money wage rates are flexible
Which factor would likely lead to an increase in potential GDP?
Which factor would likely lead to an increase in potential GDP?
- Investment in infrastructure (correct)
- Increase in taxation
- Decrease in labor productivity
- Decrease in the money supply
What is the characteristic difference between short-run and long-run aggregate supply?
What is the characteristic difference between short-run and long-run aggregate supply?
Which of the following actions would typically decrease aggregate demand?
Which of the following actions would typically decrease aggregate demand?
Which of the following actions would likely lead to a decrease in aggregate demand?
Which of the following actions would likely lead to a decrease in aggregate demand?
What is a likely effect of a decrease in government expenditure on the economy in the short run?
What is a likely effect of a decrease in government expenditure on the economy in the short run?
If the economy is operating below its potential GDP, which of the following fiscal policies would be appropriate?
If the economy is operating below its potential GDP, which of the following fiscal policies would be appropriate?
During stagflation, which combination of changes occurs in real GDP and the price level?
During stagflation, which combination of changes occurs in real GDP and the price level?
Which factor is most directly related to the long-run aggregate supply curve?
Which factor is most directly related to the long-run aggregate supply curve?
What effect does a rise in the price level have on the quantity of real GDP demanded?
What effect does a rise in the price level have on the quantity of real GDP demanded?
Which factor is NOT a reason why the aggregate demand curve slopes downward?
Which factor is NOT a reason why the aggregate demand curve slopes downward?
Which of the following shifts the aggregate demand curve?
Which of the following shifts the aggregate demand curve?
How does an increase in real wealth typically affect aggregate demand?
How does an increase in real wealth typically affect aggregate demand?
What is the relationship between interest rates and aggregate demand when the price level rises?
What is the relationship between interest rates and aggregate demand when the price level rises?
What occurs when aggregate demand changes?
What occurs when aggregate demand changes?
Which of the following factors does NOT contribute to changes in aggregate demand?
Which of the following factors does NOT contribute to changes in aggregate demand?
Which of the following actions would typically increase aggregate demand?
Which of the following actions would typically increase aggregate demand?
Study Notes
Short-Run Macro Equilibrium
- Occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied
- Intersection of AD and SAS
- Money wage rate is fixed
Long-Run Macro Equilibrium
- Occurs when real GDP equals potential GDP – i.e., when the economy is on its LRAS curve
- Intersection of AD and LRAS
- Money wage rate adjusts
Aggregate Demand Curve
- AD is described by an aggregate demand schedule and aggregate demand curve
- Slopes downward for two reasons:
- Wealth Effect
- When the price level rises but other things remain the same, real wealth decreases
- Individuals then savings and current consumption AD
- Substitution Effect
- When the price level rises and other things remain the same, interest rates rise
- Individuals then savings and current consumption AD
- Wealth Effect
Changes in Aggregate Demand
- Aggregate demand changes when any factor that influences planned expenditure other than the price changes
- Factors that cause aggregate demand changes
- Expectations
- Fiscal policy
- Monetary policy
- The world economy
- When AD changes, the AD curve shifts
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Description
This quiz focuses on the concepts of short-run and long-run macro equilibrium, exploring the intersection of Aggregate Demand (AD) with Short-Run Aggregate Supply (SAS) and Long-Run Aggregate Supply (LRAS). It also examines the reasons behind the downward slope of the Aggregate Demand curve and what factors influence changes in aggregate demand.
