1. Aggregate Demand curves slope down. Explain in a sentence what that means (what happens when Price Level falls, all else constant?) and give one reason for the negative slope (inverse relation). 2. Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment? a. The price of crude oil rises significantly (300%. say) raising the price of energy generally. b. Spending on national defense doubles. c. Investment spending falls as firms expect slower sales growth. d. An improvement in technology raises labor productivity. e. The United States raises exports of new passenger aircraft to China. 3. Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in aggregate demand in each range.

1. Aggregate Demand curves slope down. Explain in a sentence what that means (what happens when Price Level falls, all else constant?) and give one reason for the negative slope (inverse relation). 2. Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment? a. The price of crude oil rises significantly (300%. say) raising the price of energy generally. b. Spending on national defense doubles. c. Investment spending falls as firms expect slower sales growth. d. An improvement in technology raises labor productivity. e. The United States raises exports of new passenger aircraft to China. 3. Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in aggregate demand in each range.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 21P: Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand...

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