CHAPTER 9
AGGREGATE DEMAND AND AGGREGATE SUPPLY
FILL IN THE BLANK
1. The term business cycle suggests that economic fluctuations follow some patterns, somehow in fact, economic fluctuations are _____ and _____.
2. When the firm chooses to produce a smaller quantity if goods and services, the result is that unemployment will be _____.
3. The classical economy analysis was based on two related ideas that are _____.
4. Even the classical economist such as _____ realized that classical economic theory did not hold in the _____.
5. The economy’s GDP is the sum of its _____.
6. A lower price level that reduces the interest rate will result _____ the quantity of goods and services demanded.
7. The wealth effect describes the relationship between _____ and _____.
8. In the long run, Aggregate Supply curve is _____ whereas in the short-run, _____ is upward sloping.
9. The stickiness of wage gives firms an incentive to produce _____ than the natural rate of output when the price level is _____ than expected.
10. The period when the output is falling while price is rising is called _____.
TRUE-FALSE
1. There’s only one model to analyze short-run economic fluctuations, that is Aggregate Demand and Aggregate Supply model.
2. When the recession ends and real GDP starts to expand, the unemployment gradually declines until zero.
3. According to classical economy, changes in money supply affect real variables but not the nominal variables.
4. When the real exchange value of domestic currency falls, it leads to increase the quantity of goods and services demanded.
5. When the currency _____, it will stimulate the _____ for net exports.
6. When the government raises taxes, people decrease their spending, and the Aggregate Demand curve shift to the right.
7. A recession overseas shifts the Aggregate Demand curve to the left.
8. If there’s a change in the availability of the natural resources can also shift the Aggregate Supply curve.
9. The sticky-price theory is one of sources why the Aggregate Supply curve might be shifting.
10. In the long-run, shifting in Aggregate Demand affect the overall price level but doesn’t affect output.
MULTIPLE CHOICE
1. The wealth effect depicts the relationship between:
a. Price level and Consumption
b. Price level and Income
c. Interest rate and consumption
d. Interest rate and Income
2. The term that doesn’t depict the business cycle is:
a. Economic fluctuations follow a regular predictable pattern
b. Fluctuations in the economy
c. The business mechanism in the economy
d. The fluctuations that correspond to change in business condition
3. The classical economic says that:
a. There’s separation of variables into real and nominal
b. Changes in money supply affects real GDP and unemployment
c. Changes in money supply affect nominal not real
d. Money does not matter
4. The components of GDP are below, except:
a. Investment
b. Government Expenditures
c. Taxes Collection
d. Import
5. When the price level falls, thus:
a. The wealth is increased
b. The wealth is decreased
c. Spending is less
d. Aggregate demand is decreased
6. That doesn’t cause the shifting in Aggregate Demand curve is:
a. Changes in Consumption
b. Changes in Government Expenditures
c. Changes in Taste
d. Changes in Net Export
7. Long-run Aggregate Supply is _____, except:
a. Drawn as vertical curve
b. Depending on the natural rate of unemployment
c. Not affected by the price level
d. Drawn as an upward sloping curve
8. When overall prices level fall below the level that suppliers expected, they may mistakenly believe that their relatives prices have fallen, and they respond by reducing the quantity supplied. That case is the example of:
a. Misperception Theory
b. Sticky-Price Theory
c. Sticky-Wage Theory
d. Wage-Stickiness
9. The long-run equilibrium occurs when _____, except:
a. Aggregate Demand crosses long-run Aggregate Supply
b. The expected price level adjusted to the equal price level
c. The short-run Aggregate Supply crosses also the point Aggregate Demand and long-run Aggregate Supply
d. The natural rate of output higher than unemployment
10. Aggregate Supply curve are below, except:
a. Inflation
b. Stagnation
c. Collusion
d. Stagflation
ESSAY
1. What are 3 facts of the economy in the real life?
2. Explain why money does not matter in classical world.
3. Why is the Aggregate Demand Curve downward sloping? Explain briefly!
4. a. How does the lower interest rate increases the quantity of goods and services demanded?
b. How does the appreciation of currency stimulate the demand for net export?
5. Draw the changing in Aggregate Demand curve for each situations below:
a. The experts predict that future business is running down (unwell)
b. The Ministries decide to purchase new computer and internet connection stuffs.
6. Why is in the long run, the increase in Aggregate Demand not increase the output equilibrium?
7. Explain briefly how the Aggregate Supply curve might shift in the long-run?
8. What is Sticky-Price and Sticky-Wage mean?
9. Explain the 3 reasons why the short-run Aggregate Supply curve may upward sloping?
10. Show how the shifts in Aggregate Demand affect economy in the short-run as well as in the long-run! (complete with graph)
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