29.1 Why
is the aggregate demand curve downsloping? Specify how your explanation
differs from the explanation for the downsloping demand curve for a
single product. What role does the multiplier play in shifts of the
aggregate demand curve?
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29.2 Distinguish
between “real-balances effect” and “wealth effect,” as the terms are
used in this chapter. How does each relate to the aggregate demand
curve?
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29.3 What
assumptions cause the immediate-short-run aggregate supply curve to be
horizontal? Why is the long-run aggregate supply curve vertical? Explain
the shape of the short-run aggregate supply curve. Why is the short-run
curve relatively flat to the left of the full-employment output and
relatively steep to the right?
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29.4 What
effects would each of the following have on aggregate demand or
aggregate supply, other things equal? In each case, use a diagram to
show the expected effects on the equilibrium price level and the level
of real output, assuming that the price level is flexible both upward
and downward.a. A widespread fear by consumers of an impending economic depression.b. A
new national tax on producers based on the value added between the
costs of the inputs and the revenue received from their output.c. A reduction in interest rates at each price level.d. A major increase in spending for health care by the Federal government.e. The general expectation of coming rapid inflation.f. The complete disintegration of OPEC, causing oil prices to fall by one-half.g. A 10 percent across-the-board reduction in personal income tax rates.h. A sizable increase in labor productivity (with no change in nominal wages).i. A 12 percent increase in nominal wages (with no change in productivity).j. An increase in exports that exceeds an increase in imports (not due to tariffs).
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29.5 Assume that (a) the price level is flexible upward but not downward and (b)
the economy is currently operating at its full-employment output. Other
things equal, how will each of the following affect the equilibrium
price level and equilibrium level of real output in the short run?a. An increase in aggregate demand.b. A decrease in aggregate supply, with no change in aggregate demand.c. Equal increases in aggregate demand and aggregate supply.d. A decrease in aggregate demand.e. An increase in aggregate demand that exceeds an increase in aggregate supply.
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29.6 Explain
how an upsloping aggregate supply curve weakens the realized multiplier
effect from an initial change in investment spending.
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29.7 Why
does a reduction in aggregate demand in the actual economy reduce real
output, rather than the price level? Why might a full-strength
multiplier apply to a decrease in aggregate demand?
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29.8 Explain:
“Unemployment can be caused by a decrease of aggregate demand or a
decrease of aggregate supply.” In each case, specify the price-level
outcomes.
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29.9 Use shifts of the AD and AS curves to explain (a) the U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s and (b) how
a strong negative wealth effect from, say, a precipitous drop in house
prices could cause a recession even though productivity is surging.
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29.10 In
early 2001 investment spending sharply declined in the United States.
In the two months following the September 11, 2001, attacks on the
United States, consumption also declined. Use AD-AS analysis to show the
two impacts on real GDP.
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29.11
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