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Questions and Answers

(1071 solutions)

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Suppose the economy is initially in long-run equilibrium. Then suppose there is a sudden rise in the price of crude oil due to a military conflict in the Middle East. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

e. Output and the price level are unchanged from their initial values...

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Posted by Cleveland on September 10, 2024
Suppose the economy is initially in long-run equilibrium. Then suppose there is a sudden rise in the price of crude oil due to a military conflict in the Middle East. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

b. Prices rise and output falls....

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Posted by Cleveland on September 10, 2024
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

b. Prices fall and output is unchanged from its initial value....

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Posted by Cleveland on September 10, 2024
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?


c. Prices fall and output falls....

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Posted by Cleveland on September 10, 2024
Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the _______.


b. misperceptions theory of the short-run aggregate-supply curve...

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Posted by Cleveland on September 10, 2024
Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the _______.

a. sticky-wage theory of the short-run aggregate-supply curve...

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Posted by Cleveland on September 10, 2024
The natural level of output is the amount of real GDP produced _______.

d. when the economy is at the natural rate of unemployment...

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Posted by Cleveland on September 10, 2024
According to the wealth effect, aggregate demand slopes downward because _______.

a. lower prices increase the value of money holdings and consumer spending increases...

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Posted by Cleveland on September 10, 2024
Which of the following statements is true regarding the long-run aggregate-supply curve? The long-run aggregate-supply curve _______.

d. is vertical because an equal change in all prices and wages leaves output unaffected...

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Posted by Cleveland on September 10, 2024
In the model of aggregate demand and aggregate supply, the initial impact of a decrease in consumer optimism is to _______.

d. shift aggregate demand to the left...

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Posted by Cleveland on September 10, 2024