Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 9, Problem 7RQ
To determine
To find: The two variables related to aggregate
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Explain the factors that cause the Aggregate Demand curve to be downward sloping left to right.
Explain what is meant by aggregate demand. Then how to derive the AD curve and why the AD curve has a negative slope. Explain using a graph how the effect of an increase in money supply on the AD curve. In the same way, also explain the effect of an increase in government purchase on the AD curve.
The following graph shows the short-run and long-run aggregate supply curves (SRAS and LRAS) for an economy.
Suppose there is a technological improvement that allows firms to reduce their costs of production permanently.
Drag one or both of the curves on the graph to illustrate the long-term effects of this change. If you don't believe there will be any long-term effects,
leave the curves where they are.
240
LRAS
SRAS
200
SRAS
160
LRAS
120
80
40
6
12
18
24
REAL GDP (Trillions of dollars)
Assuming aggregate demand is not affected by the technological improvement, the long-run effect of this
v supply shock
is
v in aggregate output and
v in the price level.
PRICE LEVEL
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- The following graph shows an aggregate demand curve (AD) illustrating the inverse relationship between the price level and the quantity of Real GDP in the United States. During World War II, the United States increased military spending. Show the effect of the following scenario on the aggregate demand curve by dragging the curve or moving the point to the appropriate position. Note: Tool tip: To move the curve, click and drag any part of the curve. The curve will snap into position, so if you try to move it and it snaps back to its original position, just try again and drag it a little farther. PRICE LEVEL Aggregate Demand I I " I 1 REAL GDP AD AD (?)arrow_forwardThe following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion. The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change needed to decrease AD Wealth (increase/ decrease) Taxes (increase/ decrease) Expected rate of return on investment (increase/ decrease) Incomes in other countries (increase/ decrease)arrow_forward
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