Question 1

Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

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Question 2

What is the natural level of output?

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Question 3

When there is a recessionary gap:

Accepted Answer

A recessionary gap occurs when real GDP is below potential GDP, which indicates that there is insufficient demand in the economy. This leads to a situation where unemployment exceeds the natural rate of unemployment. Therefore, choice A is the best option.

Question 4

What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

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Question 5

Cost-push inflation is caused by:

Accepted Answer

Cost-push inflation is caused by a decrease in short-run aggregate supply, which leads to higher production costs and thus higher prices for goods and services. This type of inflation is often triggered by factors such as higher input costs (e.g. energy or labor), government regulations, or supply shocks (e.g. natural disasters). A increase in short-run aggregate supply, on the other hand, would reduce production costs and put downward pressure on prices, thereby reducing the risk of cost-push inflation.

Question 6

Describe the difference between a microeconomic demand curve and an aggregate demand curve.

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Question 7

The aggregate demand curve portrays the relationship between price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

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Question 8

Point A suggests:

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The answer of Point A suggests: 
...

Question 9

Point A suggests:

Accepted Answer

The presence of a recessionary gap indicates that the economy is producing below its potential output, which means that there are unemployed resources such as labor and capital. The code "TB5768_00" at the end of Point A could be a reference to a specific period or region, but it does not provide enough information to determine the state of the economy at that time.

Question 10

Cost-push inflation is caused by:

Accepted Answer

Cost-push inflation occurs when there is a decrease in short-run aggregate supply, meaning the input costs to produce goods and services increase, causing prices to rise. This is typically caused by factors such as an increase in the cost of raw materials or an increase in wages for workers. Therefore, the best choice is D.

Question 11

What happens to aggregate demand if the demand for consumption goods decreases? If the demand for investment goods increases?

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Question 12

Stagflation is generally caused by:

Accepted Answer

Stagflation is a situation where there is a concurrent increase in inflation and decrease in real GDP or total output, and is primarily caused by a decrease in aggregate supply. This may be due to supply shocks such as sudden increase in the prices of raw materials, disruption in production processes or natural disasters that affect production capacity. When the supply of goods and services falls, prices increase due to higher demand, while output and employment decline, leading to a stagnant economy. This is different from regular inflation which can be caused by excessive aggregate demand.

Question 13

Identify four changes in the economy that would cause the aggregate demand curve to decrease (shift to the left).

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Question 14

Point A suggests:

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...

Question 15

What are the major factors that determine investment, and what impact does each have on aggregate demand?

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Question 16

When there is a recessionary gap:

Accepted Answer

A recessionary gap means that actual output is lower than potential output, which is also known as the natural level of output. Therefore, choice C is correct. Choices A and B are incorrect as they describe situations where actual output equals or exceeds potential output, which is not a recessionary gap. Choice D is incorrect as only one option is possible in this scenario.

Question 17

Explain how changes in the stock of capital affect aggregate supply.

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Question 18

A recession is most commonly caused by:

Accepted Answer

A decrease in aggregate demand, which can be caused by factors such as high interest rates, a decrease in consumer confidence, or a decrease in government spending, is the most common cause of a recession. When demand for goods and services decreases, businesses produce less and often lay off workers, leading to a decrease in overall economic activity.

Question 19

When there is a recessionary gap:

Accepted Answer

A recessionary gap occurs when actual output is less than potential output. This means that there are unused resources in the economy, including labor. Therefore, employment is less than full employment during a recessionary gap.

Question 20

Explain why the short-run supply curve is not vertical, but the long-run aggregate supply curve is vertical.

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Quiz 14: Monopolistic Competition and Product Differentiation

Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

What is the natural level of output?

When there is a recessionary gap:

What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?

Cost-push inflation is caused by:

Describe the difference between a microeconomic demand curve and an aggregate demand curve.

The aggregate demand curve portrays the relationship between price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

Point A suggests:

Point A suggests:

Cost-push inflation is caused by:

What happens to aggregate demand if the demand for consumption goods decreases? If the demand for investment goods increases?

Stagflation is generally caused by:

Identify four changes in the economy that would cause the aggregate demand curve to decrease (shift to the left).

Point A suggests:

What are the major factors that determine investment, and what impact does each have on aggregate demand?

When there is a recessionary gap:

Explain how changes in the stock of capital affect aggregate supply.

A recession is most commonly caused by:

When there is a recessionary gap:

Explain why the short-run supply curve is not vertical, but the long-run aggregate supply curve is vertical.