Question 1

Demonstrate graphically and explain verbally the role the multiplier effect has in the shape of the aggregate demand curve.

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Question 2

Explain what will happen to the SAS curve if productivity increases.

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Question 3

Suppose that in order to win voter support for reelection,an incumbent President pushes a tax cut through Congress.What impact will this have on the AD curve?

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Question 4

Suppose the economy is in an inflationary gap,as illustrated by point A in the diagram below:  Suppose that everyone knows that inflationary gaps lead to cost pressures that will eventually result in the price level rising.Since people expect the price level to rise soon,suppose they increase their buying now (before prices rise).Demonstrate graphically and explain verbally how this will complicate the economy's adjustment story described in the text.

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Question 5

Why is the short-run aggregate supply (SAS)curve upward sloping?

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Question 6

Explain why the long-run aggregate supply (LAS)curve is vertical.

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Question 7

Demonstrate graphically and explain verbally the comparison of the impact of a drop in the price level on the shape of the aggregate demand curve when the multiplier effect is positive to when it is zero.

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Question 8

What are the three ways that falling asset prices can affect aggregate demand?

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Question 9

In 2001,the U.S.economy suffered a mild recession.As a result,the Fed implemented expansionary monetary policy several times,and expanded the money supply to stimulate the economy.Explain the intention of such monetary policy.

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Question 10

Demonstrate graphically and explain verbally the case of an inflationary gap.Describe the forces in the economy that will result in the gap closing itself.

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Question 11

Assuming the economy is in long-run equilibrium,using an AS/AD diagram,demonstrate graphically and explain verbally the long-run impact on the price level and real output of an expectation by business executives of a recession in the near future.

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Question 12

For each of the following "quotes" from The Wall Street Journal,draw a picture to show how the AD curve will shift.Label your original curve AD₀ and your new curve AD₁. (a)"The value of the US dollar rose about 50% against the yen and 20% against the mark." (b)"The Dow Jones Industrials closed above 25,000 for the first time." (c)"Federal investment in civilian capital and infrastructure,education,and research and development is falling."

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Question 13

What are feedback effects,and how does the AS/AD model incorporate them?

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Question 14

What factors shift the short-run aggregate supply (SAS)curve? Explain the impact of changes in each factor on the SAS curve.

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Question 15

Consider the following diagram  Demonstrate graphically and explain verbally the impact of a decrease of 50 in government spending on the AD curve in the diagram when the multiplier is 3.

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Question 16

Explain verbally and demonstrate graphically how in an AS/AD model with dynamic feedback effects,a decline in the price level can lead to a vicious downward spiral.

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Question 17

How might feedback effects cause a fall in housing prices (like the one that set off the crisis in the U.S.economy in 2008)to cause a worse result than the one predicted by the standard AS/AD model?

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Question 18

Demonstrate graphically and explain verbally a recessionary gap.Describe two solutions for closing the gap.

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Question 19

Using an AS/AD diagram,demonstrate graphically and explain verbally the short-run impact on the price level and real output of an increase in the labor productivity schedule.

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Question 20

What is deflation? What could deflation do during a recession?

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Quiz 26: The Keynesian Short-Run Policy Model: Demand-Side Policies