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Macroeconomics review: AD-AS, unemployment, inflation

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1. Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both. Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case?

a. The price level changes
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?

b. Consumer confidence declines
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?

c. The supply of resources increases
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?

d. The wage rate increases
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?

2. Determine whether the following statements are true or false.
i. Some people who are officially unemployed are not in the labor force.
ii. Some people in the labor force are not working.
iii. Everyone who is not unemployed is in the labor force.
iv. Some people who are not working are not unemployed.

3. Refer to the following data on the U.S. consumer price index and answer the questions below.
Year CPI Year CPI Year CPI Year CPI
1988 118.3 1993 144.5 1998 163.0 2003 184.0
1989 124.0 1994 148.2 1999 166.6 2004 188.9
1990 130.7 1995 152.4 2000 172.2 2005 195.3
1991 136.2 1996 156.9 2001 177.1 2006 201.8
1992 140.3 1997 160.5 2002 179.9

a. Compute the inflation rate for each year 1989-2006.

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Solution Preview

1. Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both. Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case?

a. The price level changes
i. Which curve shifts?
Neither.
ii. Which direction does it shift?
It doesn't.
iii. What happens to aggregate output?
In the long run it returns to equilibrium.
iv. What happens to the price level?
In the long run it returns to equilibrium.

b. Consumer confidence declines
i. Which curve shifts?
AD.
ii. Which direction does it shift?
Left.
iii. What happens to aggregate output?
...

Solution Summary

This solution gives the answers to 3 common questions found on Macroeconomics exams. The topics covered are:

Aggregate Demand & Aggregate Supply
The unemployment rate
The inflation rate

$2.19
See Also This Related BrainMass Solution

Types of Unemployment and Policy Makers

1.
Compare and contrast the three types of unemployment: Frictional Unemployment, Structural Unemployment & Cyclical Unemployment.
If you were a policy maker which type of unemployment would be most bothersome to you?

2.
What costs are associated with inflation? Explain at least 3 different costs that individuals or businesses experience when inflation rises.

3.
Explain why transfer payments are not included in GDP.

4.
Using the components of GDP covered in section 22.1 of your text, explain which component would be affected by the following (only one component should be chosen for each scenario):
a. You buy an Italian purse.
b. You buy a new house.
c. New lanes are added to Interstate 40.
d. You buy groceries.
e. You buy a new washer and dryer.

5.
Suppose the economy is at a macroeconomic equilibrium as is shown on Slide 40 of the Video link (Below) which is 25.6 Exhibit 1 & 2. The government decides to give every taxpayer a $500 tax refund.
a. What happens to the aggregate demand curve after the refund?
b. What happens to the price level after this change?
c. Is real wealth increased or decreased as a result of the refund?

VIDEO LINK https://vcampbethel.blob.core.windows.net/public/Courses/OL_4020/Unit_5/CPS_OL_4020_unit5/CPS_OL_4020_Unit_5.mp4

6.
Review Section 22.7 in your text. Compare and contrast the results of the Classical Model and the Keynesian model after an expansionary policy. Keep in mind that the economy is in a recession and not at full employment. Address the following:
a. The shape of the aggregate supply curve in each model in both the long-run and short-run.
b. The effect of an expansionary policy on aggregate demand in both the long-run and short-run.
c. The effect of an expansionary policy on the price level in both the long-run and short-run.

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