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Macroeconomics

David Colander

Chapter 10

The Aggregate Demand/Aggregate Supply Model - all with Video Answers

Educators

Chapter Questions

Problem 1

Distinguish between a laissez-faire economist and an activist economist. LO1

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01:10

Problem 2

Classicals saw the Depression as a political problem, not an economic problem. Why? LO1

Majid Borumand
Majid Borumand
Numerade Educator
01:38

Problem 3

Why, in principle, would one expect the $A D$ curve to be vertical? $\mathrm{LO} 2$

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:13

Problem 4

What are five factors that cause the $A D$ curve to shift? LO2

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
08:24

Problem 5

Explain how a rise in the price level affects aggregate quantity demanded with the:
a. Interest rate effect.
b. International effect.
c. Money wealth effect. $\mathrm{LO} 2$

KM
Kanishk Mishra
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Problem 6

What will likely happen to the slope or position of the $\mathrm{AD}$ curve in the following circumstances?
a. The exchange rate changes from fixed to flexible.
b. A fall in the price level doesn't make people feel richer.
c. A fall in the price level creates expectations of a further-falling price level.
d. Income is redistributed from rich people to poor people.
e. Autonomous exports increase by 20 .
f. Government spending decreases by $10 . \mathrm{LO} 2$

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Problem 7

What dynamic feedback effects can offset the interest rate, international, and money wealth effects? LO2

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01:13

Problem 8

What are two factors that cause the SAS curve to shift? LO3

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator

Problem 9

What will likely happen to the SAS curve in each of the following instances?
a. Productivity rises 3 percent; wages rise 4 percent.
b. Productivity rises 3 percent; wages rise 1 percent.
c. Productivity declines 1 percent; wages rise 1 percent.
d. Productivity rises 2 percent; wages rise 2 percent. LO3

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01:52

Problem 10

Why is the LAS curve vertical? LO4

Crystal Wang
Crystal Wang
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Problem 11

What will happen to the position of the SAS curve and/ or LAS curve in the following circumstances?
a. Available factors of production increase.
b. A civil war occurs.
c. Wages that were fixed become flexible, and aggregate demand increases. LO3, LO4

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Problem 12

If an economy is in short-run equilibrium that is below potential, what forces will bring the economy to long-run equilibrium? LO5

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03:37

Problem 13

Moore's law states that every 18 months, the computing speed of a microchip doubles.
a. What effect does this likely have on the economy?
b. Explain your answer using the AS/AD model. LO5

Ashley Volpe
Ashley Volpe
Numerade Educator
03:38

Problem 14

Congratulations! You have been appointed an economic policy adviser to the United States. You are told that the ceonomy is significantly below its potential output and that the following will happen next year: World income will fall significantly and the price of oil will rise significantly. (The United States is an oil importer.)
a. What will happen to the price level and output? Using the AS/AD model, demonstrate your predictions graphically.
b. What policy might you suggest to the government? LO5

Nick Johnson
Nick Johnson
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01:59

Problem 15

What fiscal policy actions would you recommend in the following instances?
a. The economy begins at potential output, but foreign economies slow dramatically.
b. The economy has been operating above potential output and inflationary pressures rise.
c. A new technology is invented that significantly raises potential output. LO5

Banhishikha Sinha
Banhishikha Sinha
Numerade Educator
04:52

Problem 16

Demonstrate graphically how a falling price level can destabilize an economy. LO6

Crystal Wang
Crystal Wang
Numerade Educator
01:13

Problem 17

Why is countercyclical fiscal policy difficult to implement? LO7

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
03:05

Problem 18

Why is knowing the level of potential output important to designing appropriate fiscal policy? LO7

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator

Problem 19

In the late $1990 \mathrm{~s}$, a growing number of economists argued that world policy makers were focusing too much on fighting inflation. The economists also argued that the technical level of potential output had risen. Show their argument using the AS/AD model. LO7

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Problem 20

Why is macro policy more difficult than the simple model suggests? LO7

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