The Economics of Money, Banking, and Financial Markets

Frederic S. Mishkin

Chapter 22

Aggregate Demand and Supply Analysis - all with Video Answers

Educators

Chapter Questions

Problem 1

Explain why the aggregate demand curve slopes downward and the short-run aggregate supply curve slopes upward.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 2

Identify changes in three factors that will shift the aggregate demand curve to the right and changes in three different factors that will shift the aggregate demand curve to the left.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 3

"The depreciation of the dollar from December 2008 to December 2009 had a positive effect on aggregate demand in the U.S." Is this statement true, false, or uncertain? Explain your answer.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 4

What determines the unemployment rate when output is at potential?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 5

As the labor force becomes more productive over time, how does that affect the long-run aggregate supply curve?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 6

Why are central banks so concerned about inflation expectations?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 7

If prices and wages are perfectly flexible, then $\gamma=0$ and changes in aggregate demand have a smaller effect on output." Is this statement true, false, or uncertain? Explain your answer.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 8

What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?

Tina Pavlovich

Numerade Educator

Problem 9

If large budget deficits cause the public to think that there will be higher inflation in the future, what is likely to happen to the short-run aggregate supply curve when budget deficits rise?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 10

Internet sites that allow people to post their resumes reduce the cost of a job search. How do you think the Internet has affected the natural rate of unemployment?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 11

When aggregate output is below the natural rate of output, what will happen to the inflation rate over time if the aggregate demand curve remains unchanged? Why?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 12

Suppose that the public believes that a newly announced anti-inflation program will work and so lowers its expectations of future inflation. What will happen to aggregate output and the inflation rate in the short run?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 13

If the unemployment rate is above the natural rate of unemployment, holding other factors constant, what will happen to inflation and output?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 14

What happens to inflation and output in the short run and the long run when government spending increases?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 15

What factors led to a decrease in both the unemployment rate and the inflation rate in the 1990 s?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 16

Are there any "good" supply shocks?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 17

Why did the Federal Reserve pursue inherently recessionary policies in the early 1980 s?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 18

In what ways is the Volcker disinflation considered a success? What are the negative aspects of it?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 19

Why did China fare much better than the United States and the United Kingdom during the $2007-2009$ financial crisis?

Jin-Hwan Ro

Numerade Educator

Problem 20

Using an aggregate demand and supply graph, show and describe the effects in both the short run and the
long run of the following:
a. A temporary negative supply shock.
b. A permanent negative supply shock.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 21

Many of the resources devoted to the January $2009 ~ U . S .$ stimulus package encouraged investment in research and development of new technologies (e.g., more fuelefficient cars, wind and solar power) and infrastructure investment (roads, bridges, and transportation networks). Assuming this policy results in a positive productivity change for the U.S. economy, what does aggregate demand and supply analysis predict in terms of inflation and output? Use a graph to demonstrate.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 22

Proposals have come before Congress that advocate the implementation of a national sales tax. Predict the effect of such a tax on both the aggregate supply and demand curves, showing the effects on output and inflation. Use a graph of aggregate supply and demand to demonstrate.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 23

Suppose the inflation rate remains relatively constant, and output decreases and the unemployment rate increases. Using an aggregate demand and supply graph, show how this is possible.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 24

Classify each of the following as a supply or demand shock. Use a graph to show the effects on inflation and output in the short run and the long run.
a. Financial frictions increase.
b. Households and firms become more optimistic about the economy.
c. Favorable weather produces a record crop of wheat and corn in the Midwest.
d. Steel workers go on strike for 4 weeks.

Akash M

Numerade Educator

Problem 25

During the first half of 2010 , Fed officials discussed the possibility of increasing interest rates as a way of fighting potential increases in expected inflation. If the public came to expect higher inflation rates in the future, what would be the effect on the short-run aggregate supply curve? Show your answer, using an aggregate demand and supply graph.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator