13.7 Essay: Aggregate Demand
1) What is the efect on the aggregate demand curve from an increase in the price level? In
particular, does the aggregate demand curve shift leftward or rightward?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
2) How does an increase in the price level afect the aggregate quantity of goods and
services demanded?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
3) Explain the diference between a movement along the aggregate demand curve and a
shift of the aggregate demand curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
4) How does the aggregate demand curve relect an increase in aggregate demand?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Relective thinking
5) State how each of the following afect the aggregate demand curve.
a. The price level increases.
b. Consumers expect higher inlation in the future.
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c. The exchange rate rises.
d. Foreign income decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Analytical thinking
6) Give examples of factors that decrease aggregate demand. Which way does the
aggregate demand curve shift?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
7) How does a rise in the foreign exchange rate afect aggregate demand in the United
States? Explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
101
8) How does a recession in Asia afect U.S. aggregate demand and the U.S. aggregate
demand curve?
Skill: Level 3: Using models
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
9) “An increase in Mexican income decreases aggregate demand in the United States.” Is
the preceding statement correct or incorrect? Briely explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
10) What are the two channels through which the world economy can afect U.S. aggregate
demand? State what changes in the world economy can increase U.S. aggregate demand.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
11) “The aggregate demand multiplier results in the aggregate demand curve shifting by
more than any given initial change in expenditure.” Is the previous statement correct or
incorrect?
Skill: Level 1: Deinition
Section: Checkpoint 13.2
Status: Old
AACSB: Relective thinking
102
12) What is the aggregate demand multiplier and why does it occur?
Skill: Level 1: Deinition
Section: Checkpoint 13.2
Status: Old
AACSB: Written and oral communication
13.8 Essay: Explaining Economic Trends and Fluctuations
1) What two variables are determined in an aggregate supply-aggregate demand igure? Is
the slope of the aggregate supply curve positive or negative? Is the slope of the aggregate
demand curve positive or negative?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
2) Can actual real GDP exceed potential GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
103
3) Deine potential GDP. Under what circumstances does actual real GDP fall short of
potential GDP, equal potential GDP, and exceed potential GDP?
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
4) Based on the table above,
a. What is the equilibrium price level and real GDP?
b. If potential GDP is $11.0 trillion, what does that imply about the economy‘s level of
employment?
c. If potential GDP is $9.0 trillion, what does that imply about the economy’s level of
employment?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
104
5) Suppose that during 2005, the actual real GDP of Chile was 3.5 billion pesos at the same
time the potential GDP was 3.4 billion pesos. What sort of equilibrium existed in Chile?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
6) When the aggregate supply curve intersects the aggregate demand curve at a level of
real GDP that exceeds potential GDP, is there an inlationary gap or a delationary gap?
What adjustments will take place?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
7) The economy is at full employment and then aggregate demand increases. Describe
what happens as an immediate result of the increase in aggregate demand. Describe how
the economy adjusts back to full employment.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
105
8) What is the current equilibrium price level and real GDP for the economy illustrated in
the igure above? Does this economy have an inlationary gap, a recessionary gap, or
neither? As it adjusts toward full employment, which curve shifts? What is the equilibrium
real GDP and price level that the economy will ultimately reach?
Skill: Level 4: Applying models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
9) Explain how changes in foreign income can impact real GDP in a country.
Skill: Level 5: Critical thinking
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
106
10) How does a cut in interest rates that increases investment afect the quantity of real
GDP demanded, the aggregate demand curve, real GDP, and the price level?
Skill: Level 5: Critical thinking
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
11) State how shifts in the aggregate demand curve can explain the movement of real GDP
around potential GDP.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Analytical thinking
12) What is demand-pull inlation?
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
13) What are sources that can start a demand-pull inlation?
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
107
14) Describe how a demand-pull inlation can occur.
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
15) What is a cost-push inlation?
Skill: Level 1: Deinition
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
16) What factors can start a cost-push inlation? What must the Fed’s response be for the
inlation to continue?
Skill: Level 3: Using models
Section: Checkpoint 13.3
Status: Old
AACSB: Written and oral communication
17) Deine “staglation” and explain how it can be created.
Skill: Level 2: Using deinitions
Section: Checkpoint 13.3
Status: Old
AACSB: Relective thinking
108