Chapter 12: Macroeconomics (page 428)
How does aggregate demand effect economic growth?
An increase or decrease in the components of aggregate demand will have an effect on economic growth.
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Determine the effect on short-run aggregate supply for each of the following events. Explain whether it represents a movement along the SRAS curve or a shift of the SRAS curve.
a. A rise in the consumer price index (CPI) leads producers to increase output.
b. A fall in the price of oil leads producers to increase output.
c. A rise in legally mandated retirement benefits paid to workers leads producers to reduce output.
Why does the aggregate demand curve slope down?
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?
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?
Why do you think gas prices rose in the recessions of the 1970s but fell after the Great Recession?
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