lect 3

• The AE curve is represented by the equation AE = Y
• What are the factors that determine the slope and position of the short-run aggregate supply (SRAS) curve?

  1️⃣ Input prices

  2️⃣ Technology

  3️⃣ Fixed capital stock
• The short-run aggregate supply (SRAS) curve is positively sloped because unit costs rise with increasing output.

  True
• An increase in productivity shifts the SRAS curve to the right
• What are the steps in determining macroeconomic equilibrium using the AD and SRAS curves?

  1️⃣ Draw the AD and SRAS curves

  2️⃣ Find the intersection point

  3️⃣ Determine the equilibrium real GDP and price level
• When the SRAS curve is flat, an aggregate demand shock primarily affects real GDP
• What are the two variables determined in macroeconomic equilibrium?

  Real GDP and price level
• The AD curve is drawn for given values of all exogenous expenditures and structural parameters.


  True
• A change in the price level causes a movement along the AD curve.
• A fall in the price level shifts the AE curve upward
• What does each point on the AD curve represent?

  Desired spending equals actual output
• The price level is assumed to be constant when deriving the AD curve.

  False
• A leftward shift in the SRAS curve causes stagflation, characterized by rising prices and falling output.


  True
• An aggregate demand shock causes the price level and real GDP to move in opposite directions.

  False
• What are the effects of a leftward shift in the SRAS curve on the price level and real GDP?

  1️⃣ Price level rises

  2️⃣ Real GDP falls
• A rightward shift in the SRAS curve leads to a fall in the price level
• In the classical model, the SRAS curve is vertical
• What is the shape of the SRAS curve in the Keynesian model?

  Horizontal
• What is the equation for aggregate expenditure (AE) when the price level varies?

  Y = C+I+G+(X-IM)
• During a recessionary gap, wages fall relative to productivity only slowly
• An inflationary output gap occurs when actual GDP exceeds potential GDP.


  True
• The long-run aggregate supply (LRAS) curve is vertical because potential GDP is fixed.


  True
• A rise in aggregate demand in the long run leads to a higher price level
• What does the LRAS curve indicate about real GDP?

  Potential output
• Order the shifts in aggregate demand and aggregate supply to illustrate the effects of a rise in aggregate demand in the long run.

  1️⃣ AD shifts rightward

  2️⃣ SRAS shifts leftward

  3️⃣ Price level rises

  4️⃣ Real GDP returns to potential
• A rise in the price level lowers exports because it raises the relative price of domestic goods.


  True
• The AD curve shifts leftward when exogenous expenditure increases.

  False
• What is the slope of the AD curve and why?

  Negative, due to price effects