Aggregate Demand and Supply Analysis

Everything else held constant, an autonomous monetary policy easing ________ aggregate ________.

• decreases; demand

• increases; demand

• decreases; supply

• increases; supply

Everything else held constant, a balanced budget increase in government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will

• not affect aggregate demand.

• decrease aggregate demand.

• increase aggregate demand, but not by as much as if just government spending increases.

• increase aggregate demand by more than if just government spending increases.

The aggregate supply curve shows the relationship between

• the inflation rate and the level of aggregate output supplied.

• the inflation rate and the level of inputs.

• the wage rate and the level of employment.

• the level of inputs and aggregate output.

________ flexible wages and prices imply that the short-run aggregate supply curve is ________.

• More; flatter

• Less; steeper

• Less; vertical

• More; steeper

Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run, but in the long-run the only effect is a rise in inflation.

• a decrease; supply

• an increase; demand

• an increase; supply

• a decrease; demand

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in inflation in the short run.

• an increase; an increase

• no change; no change

• a decrease; a decrease

• no change; a decrease

Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.)

• an increase; a decrease

• an increase; an increase

• no change; a decrease

• no change; an increase

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run, everything else held constant.

• an increase; an increase

• a decrease; a decrease

• a decrease; an increase

• an increase; a decrease

Everything else held constant, when output is ________ the natural rate level, wages will begin to ________, increasing short-run aggregate supply

• above; fall

• below; fall

• above; rise

• below; rise

If workers demand and receive higher real wages (a successful wage push), the cost of production ________ and the short-run aggregate supply curve shifts ________.

• rises; leftward

• rises; rightward

• falls; leftward

• falls; rightward