Chapter 12: Aggregate Demand Curve (page 239)
What is the wealth effect?
Price level decrease will influence spending decisions of households.
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Explain how an upsloping aggregate supply curve weakens the realized multiplier effect from an initial change in investment spending.
At the current price level, producers supply \(375 billion of final goods and services while consumers purchase \)355 billion of final goods and services. The price level is:
Label each of the following descriptions as being either an immediate-short-run aggregate supply curve, a short-run aggregate supply curve, or a long-run aggregate supply curve.
A vertical line.
The price level is fixed.
Output prices are flexible, but input prices are fixed.
A horizontal line.
An upsloping curve.
Output is fixed.
What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case, use a diagram to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward.
A widespread fear by consumers of an impending economic depression.
A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output.
A reduction in interest rates.
A major increase in spending for health care by the federal government.
The general expectation of coming rapid inflation.
The complete disintegration of OPEC, causing oil prices to fall by one-half.
A 10 percent across-the-board reduction in personal income tax rates.
A sizable increase in labor productivity (with no change in nominal wages).
A 12 percent increase in nominal wages (with no change in productivity).
An increase in exports that exceeds an increase in imports (not due to tariffs).
In early 2001 investment spending sharply declined in the United States. In the 2 months following the September 11, 2001 attacks on the United States, consumption also declined. Use AD-AS analysis to show the two impacts on real GDP.
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