Econ 1102 Recitation 2 Gina Pieters Recitation 2 A B C D Aggregate Demand Aggregate Supply Short vs Long Run Aggregate Supply Shifters Short Run AS AD Model Practice Problems A Aggregate Demand Recall that Aggregate Demand is determined by 1 2 3 4 Consumer Expenditures Investment Spending Government Spending Net Export Spending CPI Average Price 2 1 3 RGDP Output Suppose that Aggregate demand starts out at 1 To what line 2 or 3 will the AD move as a result of the following Event Move to line Reason Consumer Wealth Increases Taxes Increase government doesn t increase spending Interest Rates rise People EXPECT to get a higher rate of return on their CURRENT investments they ve already made the investment sometime in the past Incomes in Other countries decreases Consumers expect recession to end Page 1 of 4 Econ 1102 Recitation 2 Gina Pieters Government increases expenditure B Aggregate Supply Short vs Long Run Page 2 of 4 Econ 1102 Recitation 2 Gina Pieters C Aggregate Supply Shifters CPI 2 Average Price 1 3 RGDP Output Suppose that Short Run Aggregate Supply starts out at 1 To which line 2 or 3 will the AS move as a result of the following Event Move to line Reason Wages Increase Taxes Increase Oil becomes cheaper D Short Run AS AD model Page 3 of 4 Econ 1102 Recitation 2 Gina Pieters Practice Problems Q1 Supply line shifts Event Move to line Reason Wages decrease Consumer income increases Everyone expects High Inflation Q2 Short run AS AD a Suppose there is a stock market crash Using the Short Run AS AD model what do you expect to happen to prices and RGDP b Suppose that there is a sudden and large increase in the price of oil What do you expect to happen to prices and RGDP Q3 AS AD Model a Suppose there is a stock market crash The government enacts a stimulus package to increase AD Suppose it is successful How do prices and RGDP compare to what existed in the economy before the recession b Suppose that there is a sudden and large increase in the price of oil The government enacts a stimulus package to increase AD Suppose it is successful How do prices and RGDP compare to what existed in the economy before the recession Page 4 of 4
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