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Aggregate Demand and Aggregate Supply 255
21. Misperceptions theory helps explain what feature of the aggregate demand and aggregate supply
model?
22. Identify the variables that could cause shifts in both the short-run and long-run aggregate-supply
curves.
23. Explain how a change in the expected price level would shift the short-run and long-run
aggregate-supply curves.
256 Aggregate Demand and Aggregate Supply
24. Suppose a country experiences an increase in its capital stock. Which curve(s) in the aggregate
demand and aggregate supply model would be affected, and which way would it (they) shift?
25. Suppose a country experiences a change in weather patterns that makes farming more difficult.
Which curve(s) in the aggregate demand and aggregate supply model would be affected, and
which way would it (they) shift?
26. Suppose people anticipate an increase in the expected price level. Which curve(s) in the
aggregate demand and aggregate supply model would be affected, and which way would it (they)
shift?
Aggregate Demand and Aggregate Supply 257
27. A decrease in what variable will raise the quantity of goods and services supplied, and shift only
the short run aggregate supply curve to the right?
28. Other things the same, what happens to the price level and the quantity of output when the short
run aggregate supply curve shifts to the right?
29. Changes in what four variables will shift the long run aggregate supply curve?
258 Aggregate Demand and Aggregate Supply
30. Suppose the expected price level increases. Which curves in the aggregate demand and aggregate
supply model would be affected, and which way would they shift?
31. Write the mathematical expression that summarizes the three alternative explanations for the
upward slope of the short run aggregate supply curve.
32. A recession with inflation is known by what term?
Aggregate Demand and Aggregate Supply 259
33. Refer to Figure 33-13. Identify the price and output levels consistent with long-run equilibrium.
260 Aggregate Demand and Aggregate Supply
34. Refer to Figure 33-14. Identify which long run aggregate-supply curve(s) would be consistent
with long-run equilibrium.
35. Other things the same, what happens in the short run to the price level and quantity of output
when the aggregate demand curve shifts to the left?
Aggregate Demand and Aggregate Supply 261
36. Other things the same, what happens in the long run to the price level and quantity of output
after a contraction in aggregate demand?
37. Other things the same, what happens to the price level and quantity of output when an adverse
shift in the short run aggregate supply curve occurs?
38. Explain the short-run effects on output and the price level from a decrease in the aggregate-
demand curve.
262 Aggregate Demand and Aggregate Supply
Figure 33-15.
39. Refer to Figure 33-15. Suppose the economy begins at point A. Decreases in what four
variables could result in a movement to point D?
Figure 33-16.
Aggregate Demand and Aggregate Supply 263
40. Refer to Figure 33-16. Suppose the economy starts at P3 and Y2. If there is a decrease in
government purchases, identify the price and output levels that the economy would move to in the
short run.
264 Aggregate Demand and Aggregate Supply
Figure 33-17.
41. Refer to Figure 33-17. Suppose the economy starts at P3 and Y2. Explain how government
purchases would need to change to move the economy to P2 and Y1. What about taxes?
Aggregate Demand and Aggregate Supply 265
42. Using the aggregate demand and aggregate supply model, a decrease of what curve is by itself
consistent with the changes in prices and output that occurred during the onset of the Great
Depression?
43. Using the aggregate demand and aggregate supply model, an increase in what curve is by itself
consistent with the changes in prices and output that occurred during World War II?
44. In the aggregate demand and aggregate supply model, the point where the aggregate demand
curve crosses the long run aggregate supply curve, and the expected price level equals the actual
price level, is known as what?
266 Aggregate Demand and Aggregate Supply
45. Explain the effect on output and price level from an increase in the short-run aggregate-supply
curve.
46. During periods of stagflation, what happens to output and prices in the economy?
47. Compare changes in the price level for a recession resulting from a shift in aggregate demand to
that of a recession resulting from a shift in short run aggregate supply.
Aggregate Demand and Aggregate Supply 267
48. Who is credited for the original development of the model of aggregate demand and aggregate
supply?
49. Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?
50. Who said about classical economic theory: “the long run is a misleading guide to current affairs.
In the long run we are all dead”?
