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Chapter: ©2009  Worth Publishers >> Krugman/Wells Aggregate Demand and Aggregate Supply 12 CHECK YOUR UNDERSTANDING.

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Presentation on theme: "Chapter: ©2009  Worth Publishers >> Krugman/Wells Aggregate Demand and Aggregate Supply 12 CHECK YOUR UNDERSTANDING."— Presentation transcript:

1 chapter: ©2009  Worth Publishers >> Krugman/Wells Aggregate Demand and Aggregate Supply 12 CHECK YOUR UNDERSTANDING

2 Check Your Understanding 12-1 Question 1

3 1a) A rise in the interest rate caused by a change in monetary policy causes: 1.a movement up along the aggregate demand curve. 2.a movement down along the aggregate demand curve. 3.a leftward shift of the aggregate demand curve. 4.a rightward shift of the aggregate demand curve.

4 1b) A fall in the real value of money in the economy due to a higher price level causes: 1.a movement up along the aggregate demand curve. 2.a movement down along the aggregate demand curve. 3.a leftward shift of the aggregate demand curve. 4.a rightward shift of the aggregate demand curve.

5 1c) Expectations of a poor job market next year causes: 1.a movement up along the aggregate demand curve. 2.a movement down along the aggregate demand curve. 3.a leftward shift of the aggregate demand curve. 4.a rightward shift of the aggregate demand curve.

6 1d) A fall in tax rates causes: 1.a movement up along the aggregate demand curve. 2.a movement down along the aggregate demand curve. 3.a leftward shift of the aggregate demand curve. 4.a rightward shift of the aggregate demand curve.

7 1e) A rise in the real value of assets in the economy due to a lower price level causes: a)a movement up along the aggregate demand curve. b)a movement down along the aggregate demand curve. c)a leftward shift of the aggregate demand curve. d)a rightward shift of the aggregate demand curve.

8 1f) A rise in the real value of assets in the economy due to a surge in real estate values causes: 1.a movement (increase) along the aggregate demand curve. 2.a movement (decrease) along the aggregate demand curve. 3.a leftward shift of the aggregate demand curve. 4.a rightward shift of the aggregate demand curve.

9 Check Your Understanding 12-2 Questions 1 and 2

10 1a) A rise in CPI leads producers to increase output. This represents a: 1.shift in the SRAS curve. 2.movement along the SRAS curve.

11 1b) A fall in the price of oil leads producers to increase output. This represents a: 1.shift in the SRAS curve. 2.movement along the SRAS curve.

12 1c) A rise in legally mandated retirement benefits paid to workers leads producers to reduce output. This represents a: 1.shift in the SRAS curve. 2.movement along the SRAS curve.

13 2) Assume that an economy is initially at potential output and then the quantity of aggregate output supplied increases. At the same time the aggregate price level increased. This represents a: 1.shift in the SRAS curve. 2.movement along the SRAS curve.

14 Check Your Understanding 12-3 Questions 1 and 2

15 1a) The government sharply increases the minimum wage, raising the wages of many workers. This causes a(n) ______ in output as measured by real GDP and a(n) ______ in the price level. 1.increase; increase 2.decrease; decrease 3.increase; decrease 4.decrease; increase

16 1b) Telecommunications companies launch a major program of investment spending. This causes a(n) ______ in output as measured by real GDP and a(n) ______ in the price level. 1.increase; increase 2.decrease; decrease 3.increase; decrease 4.decrease; increase

17 1c) Congress raises taxes and cuts spending. This causes a(n) ______ in output as measured by real GDP and a(n) ______ in the price level. 1.increase; increase 2.decrease; decrease 3.increase; decrease 4.decrease; increase

18 1d) Severe weather destroys crops around the world. This causes a(n) ______ in output as measured by real GDP and a(n) ______ in the price level. 1.increase; increase 2.decrease; decrease 3.increase; decrease 4.decrease; increase

19 2) A rise in productivity increases potential output, but demand for the additional output will be insufficient in the long run. 1.True 2.False

20 Check Your Understanding 12-4 Questions 1 and 2

21 1) “Expansionary monetary or fiscal policy does nothing but temporarily over stimulate the economy—you have a brief high, but then you have the pain of inflation.” Which statement below best describes how the AS-AD model represents this statement? 1.The policy causes the AD curve to shift to the right, causing aggregate price and output to rise. After a period of time nominal wages rise, shifting the AS curve to the left until output falls back to potential output. 2.The policy causes a movement along the AD curve which increases prices. After time the prices fall back to their initial levels. 3.The policy causes the AS curve to shift to the right causing prices and output to rise. After a period of time nominal wages rise and output falls back to potential output but prices remain elevated.

22 2) In 2008 after the collapse of the housing bubble and the sharp rise in the price of commodities, especially oil, the appropriate policy for the Fed was to lower interest rates. 1.True 2.False 3.Uncertain


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