Chapter 12: Macroeconomics AD (page 239)
what is aggregate demand
total expenditure of households, firms, governments and spending on net exports
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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.
Why does a reduction in aggregate demand in the actual economy reduce real output, rather than the price level? Why might a full-strength multiplier apply to a decrease in aggregate demand?
What were the monetary and fiscal policy responses to the Great Recession? What were some of the reasons suggested for why those policy responses didn’t seem to have as large an effect as anticipated on unemployment and GDP growth?
What is the wealth effect?
What assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?
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