18 Questions
What is the effect of further increasing production in an economy close to its full capacity limit?
Causes higher prices without a significant change in production
In an economy operating at point B on the aggregate supply curve, what happens when an expansionary policy is implemented?
Leads to a small increase in production and a larger increase in prices
When implementing an economic policy to reduce inflation from 5% to 2%, what is the targeted impact on aggregate demand?
Increase aggregate demand
What was the view of many economists about inflation thirty years ago?
Inflation was considered a minor inconvenience
Why is it important to consider the state of the economy before implementing an economic policy?
To know where the economy stands on the aggregate supply curve
What happens to the equilibrium level of income when an expansionary policy is applied at point B on the aggregate supply curve?
Increases from Y0 to Y1
What is the effect of an expansionary policy when the economy is operating in the horizontal part of the AS curve?
Small increase in prices and large increase in production
What happens to the equilibrium price level when shifting the AD curve to the right under an expansionary policy?
Increases from P0 to P1
Which factor is prioritized in the horizontal part of the AS curve when implementing an expansionary policy?
Increase in production
What is the key consideration when determining the impact of economic policies on the economy based on the AS curve?
AS curve shape
What is the primary reason for having two main points of consideration regarding the AS curve when analyzing economic effects?
To understand differences in price and production reactions
In which direction does an expansionary policy shift the AD curve?
Right
According to Keynesian economists, what is the shape of the short-run aggregate supply curve at low levels of production?
Horizontal, indicating no change in prices as output increases
Why do Keynesian economists argue that firms are more likely to increase output rather than prices in response to rising demand at low levels of production?
Firms have excess capacity and can meet rising demand by utilizing idle resources
What type of unemployment is associated with the low levels of production described in the text?
Cyclical unemployment
What happens to the shape of the short-run aggregate supply curve as the economy moves from underemployment to full employment?
It becomes upward-sloping
What is the primary factor that shapes the short-run aggregate supply curve, according to the text?
Firms' production and pricing decisions in response to demand changes
What type of economic policy is mentioned in the text as a way to increase aggregate demand?
Expansionary monetary policy
Explore the impact of expansionary and contractionary policies on the AD curve, equilibrium price level, and equilibrium production level in macroeconomics. Analyze the effects while assuming the AS curve remains unchanged and paying attention to key points about AS curve.
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