Chapter 12: Aggregate Demand Curve (page 428)
What is the national income multiplier?
tool for measuring change between national income and aggregate demand
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Suppose the economy is initially at the potential output and the quantity of aggregate output supplied increases. What information would you need to determine whether this was due to a movement along the SRAS curve or a shift of the LRAS curve?
A rise in productivity increases potential output, but some worry that demand for the additional output will be insufficient even in the long run. How would you respond?
In the 1970s, Toyota was able to increase its American sales despite interest rates on auto loans surging as high as 17.5%. In contrast, after 2007, auto loan rates fell to their lowest levels in history; car sales also declined. Explain why. (Hint: Examine the connection between inflation and interest rates on loans.)
In 2008, in the aftermath of the collapse of the housing bubble and a sharp rise in the price of commodities, particularly oil, there was much internal disagreement within the Fed about how to respond, with some advocating lowering interest rates and others contending that this would set off a rise in inflation. Explain the reasoning behind each one of these views in terms of the AD-AS model.
Suppose someone says, “Using monetary or fiscal policy to pump up the economy is counterproductive —you get a brief high, but then you have the pain of inflation.”
a. Explain what this means in terms of the AD-AS model.
b. Is this a valid argument against stabilization policy? Why or why not?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
