Aggregate Demand And Supply

8 Questions | By Jessicaann471

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Chap 16 & 17- Economics Course Companion (Oxford)

Questions and Answers

1.

Refer to the diagram. Assume that wages are initially set on the basis of price level P₁ and that the economy is operating at its full-employment level of Q_f. The short-run effect of an increase in demand is best reflected by a move from:

Discuss
- A.
  
  Point e to point g
- B.
  
  Point e to point b
- C.
  
  Point e to point a
- D.
  
  Point e to point c
2.

Refer to the diagram above. If P₁ is the price level and Q_f is the full-employment output, then the long-run aggregate supply curve:
- A.
  
  Is AS1
- B.
  
  Connects points a and e
- C.
  
  Is AS2
- D.
  
  Connects points e, b, and d
3.

Refer to the diagram. Assume aggregate demand is initially given by AD₁ and cost-push inflation pushes the aggregate supply curve from AS₁ to AS₂. If the government uses fiscal policy to restrain the inflation:
- A.
  
  Aggregate demand will increase to AD2
- B.
  
  Aggregate supply will shift even further to the left
- C.
  
  Aggregate demand will shift to the left
- D.
  
  The economy will move from point b to point a
4.

Refer to the diagram. If Q₁ represents the full-employment output, then the curve labeled B is the:
- A.
  
  LRAS curve
- B.
  
  SRAS curve
5.

If the economy is initially at a point on its long-run aggregate supply curve, a decrease in aggregate demand will:
- A.
  
  Permanently increase unemployment
- B.
  
  Temporarily increase unemployment
- C.
  
  Permanently increase inflation
- D.
  
  Temporarily increase inflation
6.

Refer to the diagram. Assume the economy is initially at point a. A movement to point b might be caused by:
7.

What is Aggregate Demand?
8.

What is Aggregate Supply?

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