- Draw the long-run aggregate supply curve when potential GDP is $20.5 trillion. Label it.                                                         Price Level                  REAL                                                                                                                                        GDP deflactor            GDP(trillions   of Dollars)                                                                                                                                                                             (2012=100)      75                                   18.5      85                                   19.0      95                                   19.5      105                                 20.0      115                                 20.5      125                                 21.0      135                                 21.5   What occurs as we move up along the long-run aggregate supply curve?

10- Base on the aggregate demand-aggregate supply model, in the long-run, an increase in export sales would cause output to …. and the price level to …. A- rise, rise B- rise, stay constant C- fall, stay constant D- stay constant, rise

7. The long-run aggregate supply curve and short-run adjustments Suppose an economy's short-run aggregate supply curve (SRAS), current equilibrium aggregate price level (P₁), and real GDP (Q1) are shown on the graph that follows. The economy currently has Natural Real GDP (QN) of $6 trillion. Use this information to place the orange long-run aggregate supply curve (LRAS, square symbols) in the correct position on the graph. 20 PRICE LEVEL 0 2 4 6 Q₁ REAL GDP (Trillions of dollars) 8 SRAS 10 LRAS

Question: How does the concept of aggregate demand relate to overall economic output, and what factors can influence changes in aggregate demand? A) Aggregate demand represents the total wealth of a nation and is unaffected by external factors. B) Aggregate demand is the total spending in an economy and includes consumption, investment, government spending, and net exports; factors like changes in consumer confidence can influence it. C) Aggregate demand solely considers government spending and is unrelated to economic output. D) Aggregate demand is the total production in an economy and is determined solely by government policies.

The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labelled a, b, c, and d. Three points on the graph are also indicated by grey stars and labelled X, Y, and Z. PRICE LEVEL 160 150 140 130 120 110 100 90 80 0 с 1 d a 2 3 5 REAL GDP (Trillions of dollars) 6 7 b ? Identify which curve on the previous graph corresponds to each description in the following table. If the curve described does not appear on the graph, choose Not Shown.

Price level (GDP price Index 2012-100) Pocential AS 130 GDP 120 110 100 90 AD 19.0 195 20.0 20.5 21.0 21.5 Real GDP (trillons of 2012 dollars) In the figure above, the economy is at an equilibrium with real GDP of $20 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the curve shifts because O a. aggregate supply; leftward; the money wage rate rises O b. aggregate supply; rightward; the money wage rate falls O c. aggregate demand; leftward; the money wage rate rises d. potential GDP; leftward; the money wage rate falls O e. aggregate demand; rightward; the money wage rate falls

13 Which of the following would increase aggregate demand?     Increase in savings.   Increase in taxation. Decrease in consumption spending.   Increase in government spending.

Question: The attached picture shows the aggregate demand/aggregate supply situation in the U.S.    What is the value of actual GDP? What is the value of the GDP deflator?  Assume that people and businesses become pessimistic about the future of the economy; how will this affect the graph above in the short run? (i.e., which curve(s) will shift, and in which direction?)   After the short-run event in part b, what will happen to actual GDP? What will happen to the price level?   After the short-run event in part b, describe how the economy is doing in terms of the business cycle (i.e., recession, full employment, expansion).   What long-run adjustments will be made in this economy as a result of the short-run changes in part c? How will the curve(s) shift in response to these long-run adjustments?   After the long-run adjustments in part e, describe how the economy is doing in terms of the business cycle (i.e., recession, full employment, expansion).

The following graph shows an aggregate demand (AD) curve and a short-run aggregate supply (SRAS) curve for an economy. Suppose the economy is initially in a short-run equilibrium at PE, and Real GDP is 25trillion. At some point, the economy experiences a decrease in wage rates. Adjust the following graph to show the effect of a decrease in wage rates on the economy. Price Level 0 5 10 I | 1 15 20 25 30 35 Real GDP (Trillions Dollars) SRAS AD 40 45 50 AD SRAS

Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 150 to 125. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Money Supply 15 12 4 Money Demand 3 5 10 15 20 MONEY (Billions of dollars) INTEREST RATE (Percent) 18 0 0 25 30 Money Demand Money Supply (?) Following the price level decrease, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of than the quantity of money their money holdings. In order to do so, they will interest rates until equilibrium is