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Chapter 12: Aggregate Demand Curve (page 239)
What shifts the aggregate demand curve?
changes in consumption, investments, government spending, and net export changes.
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Why is the aggregate demand curve downsloping? Specify how your explanation differs from the explanation for the downsloping demand curve for a single product. What role does the multiplier play in shifts of the aggregate demand curve?
Which of the following will shift the aggregate demand curve to the left?
The government reduces personal income taxes.
Interest rates rise.
The government raises corporate profit taxes.
There is an economic boom overseas that raises the incomes of foreign households.
True or False. If the price of oil suddenly increases by a large amount, AS will shift left, but the price level will not rise thanks to price inflexibility.
Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown in the following table.
| Amount of Real GDP Demanded, Billions | Price Level (Price Index) | Amount of Real GDP Supplied, Billions |
| \(100 | 300 | 450 |
| 200 | 250 | 400 |
| 300 | 200 | 300 |
| 400 | 150 | 200 |
| 500 | 100 | 100 |
a. Use the data above to graph the aggregate demand and aggregate supply curves. What are the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output?
b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of the quantity supplied? By what amount? If the price level is 250, will the quantity demanded equal, exceed, or fall short of the quantity supplied? By what amount?
c. Suppose that buyers desire to purchase \)200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What are the new equilibrium price level and level of real output?
What were the monetary and fiscal policy responses to the Great Recession? What were some of the reasons suggested for why those policy responses didn’t seem to have as large an effect as anticipated on unemployment and GDP growth?
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