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the aggregate demand curve shows
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the amount of real output that will be purchased at each possible price level
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the real-balance effect shows that
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a higher price-level will decrease the real value of many financial assets and therefore reduce spending
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the factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase as each price level are the
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determinants of aggregate demand
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the foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will
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increase U.S. imports and decrease U.S. exports
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the aggregate demand curve is
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downsloping because of the interest-rate, real-balances, and foreign purchases effects.
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the interest-rate effect suggests that
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an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
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the determinants of aggregate demand explain
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shifts in the aggregate demand curve
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other things equal, id the national incomes of the major trading partners of the United States were to rise, the U.S.
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aggregate demand curve would shift to the right
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what does not shift the aggregate demand curve
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a change in the price level
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other things equal, a decrease in the real interest rate will
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expand investment and shift the AD curve to the right
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an increase in net exports will shift the AD curve to the
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right by a multiple of the change in net exports
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what would most likely reduce aggregate demand (shift the AD curve to the left)?
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an appreciation of the U.S. dollar
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in an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. we would expect this to
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increase aggregate demand
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the immediate short-run aggregate supply curve represents circumstances where
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both input and output prices are fixed
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an economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the
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multiplier effect
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the aggregate supply curve shows
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the various amounts of real output that businesses will produce at each price level
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the aggregate supply curve (short run) is upsloping because
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per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
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other things equal, and improvement in productivity will
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shift the aggregate demand supply curve to the right
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a rightward shift in the aggregate supply curve is best explained by an increase in
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productivity
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other things equal, if the U.S. dollar were to depreciate
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the aggregate supply curve would shift to the left
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what would increase per-unit production costs and therefore shift the aggregate supply curve to the left
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an increase in the price of imported resources
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the determinants of aggregate supply include
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resource prices and resource productivity
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other things equal, and appreciation of the dollar
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decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources
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other things equal, a reduction in personal and business taxes can be expected to
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increase both aggregate demand and aggregate supply
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what would not shift the aggregate supply curve
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an increase in the price level
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productivity measures
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real output per unit of input
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the short-run aggregate supply curve represents circumstances where
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input prices are fixed but output prices are flexible
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the economy's long-run AS curve assumes that wages and other resource prices
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eventually rise and fall to match upward or downward changes in the price level
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given a fixed upsloping AS curve, a rightward shift of the AD curve will
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increase both the price level and real output
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a decrease in aggregate demand will cause a greater decline in real output the
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less flexible the economy's price level is
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if aggregate demand increases and aggregate supply decreases, the price level
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will increase, but real output may increase, decrease, or remain unchanged
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if the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect
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aggregate demand to decrease and aggregate supply to increase
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the size of the multiplier associated with an initial increase in spending will be
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diminished if inflation occurs
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efficiency wages are
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above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages
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when aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of
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wage contracts
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when aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may
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reduce work moral and work effort and thus lower productivity
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the ratchet effect is the tendency of
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the price level to increase but not to decrease
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