Copyright 2017 by the UBC Real Estate Division

Size: px
Start display at page:

Download "Copyright 2017 by the UBC Real Estate Division"

Transcription

1 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright: 2017 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher.

2 LESSON 9 Economic Fluctuations: Balancing Aggregate Demand and Supply Assigned Reading 1. Mankiw, N.G., et al Principles of Macroeconomics (6 th Canadian Edition). Toronto: Nelson Education Ltd. Chapter 14: Aggregate Demand and Aggregate Supply Recommended Reading 1. Mankiw, N.G., et al Study Guide for use with the Principles of Macroeconomics, (6 th Canadian Edition). Toronto: Nelson Education Ltd. Chapter 14: Aggregate Demand and Aggregate Supply Learning Objectives After studying this lesson, students should be able to: 1. explain that short-run economic fluctuations are irregular and unpredictable, that most macroeconomic variables fluctuate together, and that there is an inverse relationship between output and unemployment; 2. explain how economic performance in the short run differs from long run economic behavior; 3. explain why the aggregate demand curve slopes downward; 4. describe the factors that cause the aggregate demand curve to shift; 5. explain why the aggregate supply curve is vertical in the long run; 6. explain what causes the long-run aggregate supply curve to shift; 7. explain why the aggregate supply curve slopes upward in the short run; 8. explain what causes the short-run aggregate supply curve to shift; 9. use the model of aggregate demand and aggregate supply to explain economic fluctuations; and 10. use the model of aggregate demand and aggregate supply to show booms and recessions. Instructor's Comments This lesson is a traditional treatment of aggregate demand/aggregate supply analysis. It is a simple but powerful model of the short-run and long-run operation of a nation or region's economy. It focuses on two important macroeconomic variables: the price level in the economy and the level of real output. The latter is directly linked to household incomes and the level of employment, and thus the unemployment rate, in the 9.1

3 Lesson 9 economy. Although the aggregate demand and supply curves look like those in microeconomics, they are not the same. In the market for any good, substitution with other goods places an important role in determining the quantity demanded. This is not possible for aggregate demand. The purpose of this lesson is to develop the model economists use to analyze the economy's short-run fluctuations B the model of aggregate demand and aggregate supply. The reasons for the downward sloping aggregate demand curve and the upward sloping aggregate supply curve are discussed in detail. We learn about the sources for shifts in the aggregate demand curve and the aggregate supply curve and how these shifts can cause recessions. This lesson also introduces actions that policymakers might undertake to offset recessions. An important distinction is between short-run and long-run aggregate supply. In the long run, the level of aggregate supply depends on real values supplied by resources, such as human, physical, and natural, at an economy's disposal with a level of technology to support it. Nominal values such as the price level or the quantity of money do not affect aggregate supply. However, in the short run, these can matter. In the short run, aggregate supply will rise with the price level in the economy because of inaccurate expectations of the price level or adjustment costs, such as for the prices of a firm's goods or the wages paid to labour. The importance of real estate in this context follows directly from Chapter 6. In Chapter 6, data was presented to show that about 27.5% of all 2012 personal consumption expenditures were for shelter and shelter-related goods and services. Because this proportion is so large, changes in the demand for these goods are important in determining aggregate demand. Many federal programs can be viewed as serving to increase aggregate demand and employment through their attempts to stimulate demand in real estate markets. Some examples include the Home Buyer's Plan (which allows holders of registered retirement savings plans B RRSPs B to withdraw up to $20,000 tax-free towards the purchase of a home) and the 5% down payment program (which allows purchasers to finance 95% of the purchase price of a home, if the loan is insured). The federal government also affects aggregate demand directly through its own real estate expenditures, which as government expenditures would shift the aggregate demand curve, for items such as public housing and urban renewal, post offices, and office buildings. Although small in size relative to all government expenditures, these expenditures are important to the real estate sector. Review and Discussion Questions 1. When economists look at the data for Canada and other economies, they notice that, when the money supply increases, GDP tends to increase also. Is this consistent with the classical dichotomy? 2. Why is the model of aggregate supply and demand different from the microeconomic theory of supply and demand? 3. Suppose a manager of a firm sees that the firm's output is selling at a price 5% higher than she expected. Explain why she might decide to increase the firm's production in this case. Suppose that what actually happened is that there was inflation, so the overall price level is 5% higher than this manager expected. Was the decision to increase production correct? Explain how such behaviour can result in an upward-sloping aggregate supply curve. 4. Name the three key facts about economic fluctuations. 5. What happens to the natural level of output when the natural rate of unemployment falls? 6. If the economy is in a recession, why might policymakers choose to adjust aggregate demand to eliminate the recession rather then let the economy adjust, or self-correct, on its own? 9.2

4 Economic Fluctuations: Balancing Aggregate Demand and Supply 7. For the following four cases, trace the impact of each shock in the aggregate-supply aggregatedemand model by answering the following three questions for each: C C C What happens to prices and output in the short run? What happens to prices and output in the long run if the economy is allowed to adjust to long-run equilibrium on its own? If policymakers had intervened to move output back to the natural level instead of allowing the economy to self-correct, in which direction should they have moved aggregate demand? (a) (b) (c) (d) aggregate demand shifts left aggregate demand shifts right short-run aggregate supply shifts left short-run aggregate supply shifts right 8. You are watching the evening news on television with a friend. The news anchor reports that union wage demands are much higher this year because the workers anticipate an increase in the rate of inflation. Your friend says, "Inflation is a self-fulfilling prophecy. If workers think there are going to be higher prices, they demand higher wages. This increases the cost of production and firms raise their prices. Expecting higher prices simply causes higher prices. (a) (b) (c) Is this true in the short run? Explain. If policymakers do nothing and allow the economy to adjust to the natural level of output on its own, does expecting higher prices cause higher prices in the long run? Explain. If policymakers accommodate the adverse supply shock, does the expectation of higher prices cause higher prices in the long run? Explain. 9. Why do you think that investment is more variable over the business cycle than consumer spending? Which category of consumer spending do you think would be most volatile: durable goods (such as furniture and car purchases), nondurable goods (such as food and clothing), or services (such as haircuts and medical care)? Why? 10. Explain whether each of the following events will increase, decrease, or have no effect on long-run aggregate supply: (a) (b) (c) (d) Canada experiences a wave of immigration. Provincial governments raise the minimum wage to $12.50 per hour. Intel invents a new and more powerful computer chip. A severe ice storm damages factories along the east coast. 11. Explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregate-demand curve, both, or neither. For each event that does shift a curve, use a diagram to illustrate the effect on the economy. (a) (b) (c) Households decide to save a larger share of their income. Okanagan peach orchards suffer a prolonged period of below-freezing temperatures. Increased job opportunities overseas cause many people to leave the country. 9.3

5 Lesson 9 ASSIGNMENT 9 CHAPTER 14: Aggregate Demand and Aggregate Supply Marks: 1 mark per question. 1. When households buy bonds, the price of bonds rises; therefore: (1) interest rates fall. (2) interest rates rise. (3) interest rates do not change. (4) any of the above are possible. 2. Which of the following factors shifts the long-run aggregate supply curve? (1) Monetary policy (2) Aggregate demand (3) Price level (4) Technology 3. In a recession, real GDP falls and consumer spending: (1) is unaffected. (2) rises. (3) falls. (4) may rise or fall. 4. Which of the following is NOT a key fact about economic fluctuations according to the textbook? (1) As output falls, unemployment rises. (2) Economic fluctuations follow the regular business cycle. (3) Most macroeconomic quantities fluctuate together. (4) Economic fluctuations are irregular and unpredictable. 9.4 Assignment 9 continues on the next page

6 Economic Fluctuations: Balancing Aggregate Demand and Supply THE NEXT TWO (2) QUESTIONS ARE BASED ON THE FOLLOWING DIAGRAM: 5. Starting with AD1 and AS1, if personal income taxes increase, the new long-run equilibrium is at point: (1) a (2) b (3) c (4) d 6. Starting with AD1 and AS1, if personal income taxes increase, the new short-run equilibrium is at point: (1) a (2) b (3) c (4) d 7. The aggregate demand curve would shift if: (1) stock prices rise causing people to feel wealthier. (2) stock prices fall causing people to conserve their spending. (3) the government cuts taxes. (4) All of the above 8. According to the, changes in the overall price level can temporarily mislead suppliers about what is happening in the individual markets in which they sell their output. (1) sticky-price theory (2) deceiving theory (3) misperceptions theory (4) sticky-wage theory Assignment 9 continues on the next page 9.5

7 Lesson 9 9. When the price level falls, households: (1) use their excess money to buy bonds or other assets. (2) use their excess money to sell bonds or other assets. (3) use all of their excess money to buy more goods and services. (4) are forced to pay their excess money to the government through higher taxes. 10. Which of the following is NOT one of the reasons the aggregate-demand curve slopes downward? (1) When price level falls, interest rates fall, which stimulates the demand for investment of goods. (2) When price level falls, the exchange rate depreciates, which stimulates the demand for net exports. (3) When price level falls, consumers are wealthier, which stimulates the demand for consumption of goods. (4) When price level falls, the supply of money increases, which allows for higher consumption of goods. 11. The model of aggregate demand and aggregate supply is the model that most economists use to explain fluctuations in economic activity around its trend. (1) short-run, long-run (2) long-run, short-run (3) aggregate-demand, long-run (4) aggregate-supply, short-run 12. To fully understand year-to-year changes in the economy, we need to: (1) use the assumption of monetary neutrality. (2) avoid including money in the model. (3) use the assumption of monetary non-neutrality. (4) use a combination of monetary neutrality and non-neutrality. 13. The aggregate supply curve shows: (1) an inverse relationship between the quantity of goods and services supplied by firms and the overall price level. (2) an inverse relationship between the quantity of goods and services demanded by firms and the overall price level. (3) a direct relationship between the quantity of goods and services supplied by firms and the overall price level. (4) a direct relationship between the quantity of goods and services demanded by firms and the overall price level. 14. The economy experiences stagflation when: (1) decreases in output are accompanied by higher prices. (2) decreases in output are accompanied by lower prices. (3) increases in output are accompanied by lower prices. (4) increases in output are accompanied by higher prices. 9.6 Assignment 9 continues on the next page

8 Economic Fluctuations: Balancing Aggregate Demand and Supply 15. Economists are able to examine the determinants of real variables without introducing nominal variables because of: (1) scientific thinking. (2) income neutrality. (3) government policy neutrality. (4) money neutrality. 16. If resources become more productive: (1) neither the short-run aggregate curve nor the long-run supply curve shifts. (2) the short-run aggregate supply curve is not affected but the long-run aggregate curve shifts. (3) the short-run and the long-run aggregate supply curves shift to the right. (4) the short-run and long-run aggregate supply curves shift to the left. 17. If the natural rate of unemployment falls: (1) the long-run aggregate supply curve shifts right. (2) the long-run aggregate supply curve is not affected. (3) the long-run aggregate supply becomes horizontal. (4) the aggregate demand curve shifts. 18. If the money supply increases, there will be: (1) a shift of the aggregate demand curve to the right. (2) a shift of the aggregate demand curve to the left. (3) a shift of the aggregate supply curve. (4) a movement along the aggregate demand curve. 19. When the price level in Canada rises: (1) the dollar appreciates; therefore, net exports rise. (2) the dollar depreciates; therefore, net exports rise. (3) the dollar appreciates; therefore, net exports fall. (4) the dollar depreciates; therefore, net exports fall. 20. Real GDP is the most commonly used variable to monitor short-run changes in the economy because it: (1) measures income levels. (2) measures trade levels. (3) measures consumption levels. (4) is the most comprehensive measure of economic activity. 20 Total Marks End of Assignment 9 9.7

LESSON 9. Economic Fluctuations: Balancing Aggregate Demand and Supply

LESSON 9. Economic Fluctuations: Balancing Aggregate Demand and Supply LESSON 9 Economic Fluctuations: Balancing Aggregate Demand and Supply Assigned Reading 1. Mankiw, N. Gregory, et al. 2011. Principles of Macroeconomics (5 th Canadian Edition). Toronto: Thomson Nelson.

More information

Chapter 33: Aggregate Demand and Aggregate Supply Principles of Economics, 8 th Edition N. Gregory Mankiw Page 1

Chapter 33: Aggregate Demand and Aggregate Supply Principles of Economics, 8 th Edition N. Gregory Mankiw Page 1 Page 1 1. Introduction a. We now turn to a short term view of fluctuations in the economy. b. This is the chapter that made this book controversial as Mankiw tends to ignore the Keynesian framework contained

More information

AGGREGATE DEMAND AND AGGREGATE SUPPLY

AGGREGATE DEMAND AND AGGREGATE SUPPLY 33 AGGREGATE DEMAND AND AGGREGATE SUPPLY WHAT S NEW IN THE FOURTH EDITION: The section on How the Short Run Differs from the Long Run, now entitled The Assumptions of Classical Economics, has been completely

More information

Chapter 8. Business Cycles. Copyright 2009 Pearson Education Canada

Chapter 8. Business Cycles. Copyright 2009 Pearson Education Canada Chapter 8 Business Cycles Copyright 2009 Pearson Education Canada Introduction to Business Cycles The business cycle is a central concern in macroeconomics, because business cycle fluctuations have such

More information

MACROECONOMICS - CLUTCH CH AGGREGATE DEMAND AND AGGREGATE SUPPLY ANALYSIS

MACROECONOMICS - CLUTCH CH AGGREGATE DEMAND AND AGGREGATE SUPPLY ANALYSIS !! www.clutchprep.com CONCEPT: AGGREGATE DEMAND The aggregate demand and aggregate supply model (AD-AS Model) explains short-run fluctuations in GDP and price Aggregate Demand is closely related to our

More information

Chapter 9. The IS LM/AD AS Model: A General Framework for Macroeconomic Analysis. Copyright 2009 Pearson Education Canada

Chapter 9. The IS LM/AD AS Model: A General Framework for Macroeconomic Analysis. Copyright 2009 Pearson Education Canada Chapter 9 The IS LM/AD AS Model: A General Framework for Macroeconomic Analysis Copyright 2009 Pearson Education Canada Introduction to the IS-LM Model Now, we put the labour, goods and asset markets into

More information

Keynes identified three primary markets; these markets provide another way of looking at how households, firms, the government and the rest of the

Keynes identified three primary markets; these markets provide another way of looking at how households, firms, the government and the rest of the Keynes identified three primary markets; these markets provide another way of looking at how households, firms, the government and the rest of the world interact with each other The market for goods and

More information

Copyright 2016 by the UBC Real Estate Division

Copyright 2016 by the UBC Real Estate Division DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate

More information

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Yulei Luo SEF of HKU November 13, 2013 Luo, Y. (SEF of HKU) ECON2220: Macro Theory November 13, 2013 1 / 36 Chapter Outline

More information

Macroeconomic Equilibrium: Aggregate Demand and Supply. Economics, 7th Edition Boyes/Melvin

Macroeconomic Equilibrium: Aggregate Demand and Supply. Economics, 7th Edition Boyes/Melvin Macroeconomic Equilibrium: Aggregate Demand and Supply Economics, 7th Edition Boyes/Melvin Aggregate demand = total spending in the economy at alternative price levels. Aggregate supply = total output

More information

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Yulei Luo SEF of HKU March 31, 2015 Luo, Y. (SEF of HKU) ECON2102CD/2220CD: Intermediate Macro March 31, 2015 1 / 36 Chapter

More information

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis

Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Yulei Luo Econ HKU November 13, 2017 Luo, Y. (Econ HKU) ECON2220B: Intermediate Macro November 13, 2017 1 / 36 Chapter Outline

More information

Chapter 26 Answers to Short-Answer, Essays, and Problems

Chapter 26 Answers to Short-Answer, Essays, and Problems Chapter 26 Answers to Short-Answer, Essays, and Problems 1. Why is there a need for an aggregate demand and aggregate supply model of the economy? Why can t the supply and demand model for a single product

More information

ECO401 Latest Solved MCQs.

ECO401 Latest Solved MCQs. This year, if national product at factor cost is Rs. 500 billion, indirect taxes 150 billion and subsidies Rs. 50 billion, then national product at market prices will be: _ Rs. 700 billion. _ Rs. 650 billion.

More information

Aggregate Demand and Aggregate Supply (UXL)

Aggregate Demand and Aggregate Supply (UXL) Aggregate Demand and Aggregate Supply (UXL) Microeconomics, the study of the economic decisions of individuals and companies, is based on the laws of supply and demand. Supply refers to the amount of a

More information

Introduction. Learning Objectives. Chapter 11. Classical and Keynesian Macro Analyses

Introduction. Learning Objectives. Chapter 11. Classical and Keynesian Macro Analyses Copyright 2012 Pearson Addison-Wesley. All rights reserved. Chapter 11 Classical and Keynesian Macro Analyses Introduction During the latter half of the 2000s, annual rates of U.S. real GDP growth varied

More information

Business Cycle Theory Revised: March 25, 2009

Business Cycle Theory Revised: March 25, 2009 The Global Economy Class Notes Business Cycle Theory Revised: March 25, 2009 We ve seen that economic fluctuations follow regular patterns and that these patterns can be used to forecast the future. For

More information

Short run aggregate supply

Short run aggregate supply Short run aggregate supply Syllabus snapshot Today we are going to. 1. Understand what is meant by the term short run aggregate supply. 2. Understand why the SRAS curve is upward sloping. 3. Understand

More information

Principles of Macroeconomics

Principles of Macroeconomics Principles of Macroeconomics Academic Program: MSc in Banking and Finance Semester: Spring 2012/13 Instructor: Dr. Nikolaos I. Papanikolaou Office: Luxembourg School of Finance, KB2-E02-21 Phone: (00352)

More information

Fixed and flexible prices

Fixed and flexible prices Fixed and flexible prices Giovanni Di Bartolomeo giovanni.dibartolomeo@uniroma1.it Note: These lecture notes are incomplete without having attended lectures Time horizons in macroeconomics Long run rices

More information

The Financial Market

The Financial Market In this presentation, we take a closer look at how the interest rate is determined in the financial market. The financial market consists of a demand for money, which is a positive function of the level

More information

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Chapter 32

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Chapter 32 The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 32 Aggregate Demand Many factors influence aggregate demand besides monetary and fiscal policy. In particular, desired spending by

More information

Aggregate Demand & Aggregate Supply

Aggregate Demand & Aggregate Supply Business Environment.2 Week 4 Aggregate Demand & Aggregate Supply 1 Objectives To appreciate how a change in the price level affects aggregate demand and aggregate supply. To understand how aggregate supply

More information

Notes On IS-LM Model: Application Econ3120, Economic Department, St.Louis University

Notes On IS-LM Model: Application Econ3120, Economic Department, St.Louis University Notes On IS-LM Model: Application Econ3120, Economic Department, St.Louis University Instructor: Xi Wang Introduction In this class note, we assembled the pieces of the IS-LM model as a step toward understanding

More information

INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION

INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION ECO 181 (F) / Page 1 of 15 INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION SECTION A There are SIXTY questions on this paper.

More information

1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down)

1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down) 1. If the per unit cost of production falls, then... A.) the supply curve shifts right (or down) B.) there is a downward movement along the existing supply curve which does not shift C.) the supply curve

More information

Macro CH 23 sample test question

Macro CH 23 sample test question Class: Date: Macro CH 23 sample test question Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Potential GDP is defined as a. the level of GDP created by

More information

2.2 Aggregate Demand and Aggregate Supply

2.2 Aggregate Demand and Aggregate Supply 2.2 Aggregate Demand and Aggregate Supply Aggregate Demand (AD): the total spending on all goods and services in an economy at a given price level over a period of time. The macroeconomic concept of aggregate

More information

Agenda. The IS LM / AD AS Model: A General Framework for Macroeconomic Analysis, Part 2. The AD Curve. Aggregate Demand and Aggregate Supply

Agenda. The IS LM / AD AS Model: A General Framework for Macroeconomic Analysis, Part 2. The AD Curve. Aggregate Demand and Aggregate Supply Agenda Aggregate Demand and Aggregate Supply The IS LM / AD AS Model: A General Framework for Macroeconomic Analysis, art 2 22-1 22-2 Aggregate Demand and Aggregate Supply The AD-AS model is derived from

More information

Lecture 10: THE AD-AS MODEL Reference: Chapter 8

Lecture 10: THE AD-AS MODEL Reference: Chapter 8 Lecture 10: THE AD-AS MODEL Reference: Chapter 8 LEARNING OBJECTIVES 1.What determines the shape of the aggregate demand (AD) curve and what factors shift the entire curve. 2.What determines the shape

More information

New Zealand Economics Competition

New Zealand Economics Competition New Zealand Economics Competition Instructions: 1. Do not open this question booklet until instructed to do so. 2. You have fifty (50) minutes to answer all forty (40) questions. No additional time is

More information

Archimedean Upper Conservatory Economics, October 2016

Archimedean Upper Conservatory Economics, October 2016 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The point on a business cycle when real gross domestic product stops rising and begins falling is a(n):

More information

Intermediate Macroeconomic Theory, 01/07/2003. A Glossary of Macroeconomics Terms

Intermediate Macroeconomic Theory, 01/07/2003. A Glossary of Macroeconomics Terms A Glossary of Macroeconomics Terms The Digital Economist -A- Absolute Advantage A comparison of input requirements between two regions or countries where one country can produce a given level of output

More information

~~~~**~+~~~ #~~~±~~~~ ~?ff*j3.3u: ~~t, 3(1E ' *~~~

~~~~**~+~~~ #~~~±~~~~ ~?ff*j3.3u: ~~t, 3(1E ' *~~~ 19 ~~~~**~+~~~ #~~~±~~~~ ~?ff*j3.3u: ~~t, 3(1E ' *~~~ ~~"tf4 : *~~~ :~~8Wl : 0710. Ifi~ : 4 1. The monopolist faces a linear inverse demand P=100-Q. Ifit has a constant marginal cost of$10, he will a.

More information

1 of 29. Aggregate Demand and Aggregate Supply. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e.

1 of 29. Aggregate Demand and Aggregate Supply. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e. 1 of 29 2 of 29 As we explained in previous chapters, recessions occur when output fails to grow and unemployment rises. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 29 1

More information

Click to return to In this Lesson

Click to return to In this Lesson In This Lesson I Chapter 1 What Economics is About Paul Schneiderman, Ph.D., Professor of Finance & Economics, Southern New Hampshire University 2011 South Western/Cengage Learning Goods and Bads and Resources

More information

Learning Objectives. Chapter 1. In this chapter you will

Learning Objectives. Chapter 1. In this chapter you will Learning Objectives Chapter 1 Learn that economics is about the allocation of scarce resources Examine some of the trade-offs that people face Learn the meaning of opportunity cost See how to use marginal

More information

LEARNING OBJECTIVES MACRO ECONOMIC

LEARNING OBJECTIVES MACRO ECONOMIC 12.2A LEARNING OBJECTIVES MACRO ECONOMIC EQUILIBRIUM An analysis of the use of AD and AS in macro equilibrium Define aggregate demand and aggregate supply Describe the components of aggregate demand/supply

More information

2. Three Key Aggregate Markets

2. Three Key Aggregate Markets 2. Three Key Aggregate Markets 2.1 The Labor Market: Productivity, Output and Employment 2.2 The Goods Market: Consumption, Saving and Investment 2.3 The Asset Market: Money and Inflation 2.1 The Labor

More information

Solutions. Question 1. Given what we have learned in class, which of the following statements are true and which false? (1 point each 6 points total)

Solutions. Question 1. Given what we have learned in class, which of the following statements are true and which false? (1 point each 6 points total) QUIZ 7: Macro Winter 2008 Solutions Question 1 Given what we have learned in class, which of the following statements are true and which false? (1 point each 6 points total) a) In a short run equilibrium

More information

A Glossary of Macroeconomics Terms

A Glossary of Macroeconomics Terms A Glossary of Macroeconomics Terms -A- Absolute Advantage A comparison of input requirements between two regions or countries where one country can produce a given level of output with less input relative

More information

Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE

Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE Wallingford Public Schools - HIGH SCHOOL COURSE OUTLINE Course Title: Advanced Placement Economics Course Number: 3552 Department: Social Studies Grade(s): 11-12 Level(s): Advanced Placement Credit: 1

More information

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from 1. An increase in aggregate demand would tend to result from A. an increase in tax rates. B. a decrease in consumer spending. C. a decrease in net export spending. D. an increase in business investment.

More information

Eco402 - Microeconomics Glossary By

Eco402 - Microeconomics Glossary By Eco402 - Microeconomics Glossary By Break-even point : the point at which price equals the minimum of average total cost. Externalities : the spillover effects of production or consumption for which no

More information

The goods market. Screen 1

The goods market. Screen 1 The goods market Screen 1 In this presentation we take a closer look at the goods market and in particular how the demand for goods determines the level of production and income in the goods market. There

More information

CIE Economics A-level

CIE Economics A-level CIE Economics A-level Topic 3: Government Microeconomic Intervention c) Labour market forces and government intervention Notes Demand for and supply of labour The labour market is a factor market. The

More information

Individual & Market Demand and Supply

Individual & Market Demand and Supply Mr Sydney Armstrong ECN 1100 Introduction to Microeconomic Lecture Note (3) Individual & Market Demand and Supply The tools of demand and supply can take us a far way in understanding both specific economic

More information

Question # 1 of 15 ( Start time: 01:24:42 PM ) Total Marks: 1 A person with a diminishing marginal utility of income: Will be risk averse. Will be risk neutral. Will be risk loving. Cannot decide without

More information

NAME: Spring Chapter 21 Quiz. 1. Explain why the money demand curve is a decreasing function of the real interest rate.

NAME: Spring Chapter 21 Quiz. 1. Explain why the money demand curve is a decreasing function of the real interest rate. NAME: Spring 2016 Chapter 21 Quiz 1. Explain why the money demand curve is a decreasing function of the real interest rate. (25 pts) Money demand refers to the amount of dollars an individual wants to

More information

Agenda. The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, Part 3. Disequilibrium in the AD-AS model

Agenda. The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, Part 3. Disequilibrium in the AD-AS model Agenda The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, art 3 rice Adjustment and the Attainment of General Equilibrium 23-1 23-2 General equilibrium in the AD-AS model Disequilibrium

More information

UNIVERSITY OF TORONTO Faculty of Arts and Science APRIL/MAY EXAMINATIONS 2006 ECO 100Y1 Y. Duration: 3 hours

UNIVERSITY OF TORONTO Faculty of Arts and Science APRIL/MAY EXAMINATIONS 2006 ECO 100Y1 Y. Duration: 3 hours UNIVERSITY OF TORONTO Faculty of Arts and Science APRIL/MAY EXAMINATIONS 2006 ECO 100Y1 Y Duration: 3 hours Examination Aids allowed: Non-programmable calculators only INSTRUCTIONS: Students are required

More information

BA5101 ECONOMIC ANALYSIS FOR BUSINESS MBA/IYear/ I Semester 2 Marks Questions & Answers

BA5101 ECONOMIC ANALYSIS FOR BUSINESS MBA/IYear/ I Semester 2 Marks Questions & Answers BA5101 ECONOMIC ANALYSIS FOR BUSINESS MBA/IYear/ I Semester 2 Marks Questions & Answers 1. Define consumer behavior Consumer behavior is the study of when, why, how, and where people do or do not buy a

More information

No 10. Chapter 11. Introduction. Real Wage Rigidity: A Question. Keynesianism: Wage and Price Rigidity

No 10. Chapter 11. Introduction. Real Wage Rigidity: A Question. Keynesianism: Wage and Price Rigidity No 10. Chapter 11 Keynesianism: Wage and Price Rigidity Introduction We earlier described the Keynesian interpretation of the IS-LM AS-AD Model The Keynesian model assumes that there exists a horizontal

More information

CHAPTER 29: AGGREGATE DEMAND AND AGGREGATE SUPPLY

CHAPTER 29: AGGREGATE DEMAND AND AGGREGATE SUPPLY ~~~~~~~~... CHAPTER 29: AGGREGATE DEMAND AND AGGREGATE SUPPLY Introduction The aggregate demand-aggregate supply (AD-AS) model provides the primary graphic d~piction of changes in the macroeconomy. Shifts

More information

Specific Learning Goals/Benchmarks and Student Assessment. AP Macroeconomics

Specific Learning Goals/Benchmarks and Student Assessment. AP Macroeconomics Unit Bartram Trail HS Specific Learning Goals/Benchmarks and Student Assessment AP Macroeconomics # Benchmark Assessment 1 1 1 2 1 3 1 4 2 5 2 6 3 7 3 8 3 9 3 10 3 11 4 12 4 13 4 14 4 15 4 16 4 17 Define

More information

Economic activity fluctuates from year to year. In most years, the production

Economic activity fluctuates from year to year. In most years, the production CHAPTER 20 Aggregate Demand and Aggregate Supply Economic activity fluctuates from year to year. In most years, the production of goods and services rises. Because of increases in the labor force, increases

More information

Business Analysis for Engineers Prof. S. Vaidhyasubramaniam Adjunct Professor, School of Law SASTRA University-Thanjavur

Business Analysis for Engineers Prof. S. Vaidhyasubramaniam Adjunct Professor, School of Law SASTRA University-Thanjavur Business Analysis for Engineers Prof. S. Vaidhyasubramaniam Adjunct Professor, School of Law SASTRA University-Thanjavur Lecture -37 Introduction to GDP Last class, I ended up stressing on, the importance

More information

EOCT Study Guide for Economics

EOCT Study Guide for Economics EOCT Study Guide for Economics 15 % of your total Grade. Review this study Guide and Notebook. This is a general guideline. You have to study the more specific concepts in your notes Domain I-Fundamental

More information

2 THINKING LIKE AN ECONOMIST

2 THINKING LIKE AN ECONOMIST 2 THINKING LIKE AN ECONOMIST LEARNING OBJECTIVES: By the end of this chapter, students should understand: how economists apply the methods of science. how assumptions and models can shed light on the world.

More information

ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided.

ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided. UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination 2015-16 ECONOMICS FOR BUSINESS NBS-4003Y Time allowed: 2 hours Answer ALL questions from Section A using the separate ANSWER

More information

WHAT IS ECONOMICS? Understanding Economics Chapter 1

WHAT IS ECONOMICS? Understanding Economics Chapter 1 WHAT IS ECONOMICS? Understanding Economics Chapter 1 Chapter 1, Lesson 1 Scarcity and the Science of Economics Needs vs. Wants! Need a basic requirement for survival, such as food, clothing and shelter.!

More information

AP Macroeconomics. You can use whichever format you want. Web view is recommended -- the responsive design works seamlessly on any device.

AP Macroeconomics. You can use whichever format you want. Web view is recommended -- the responsive design works seamlessly on any device. AP Macroeconomics Instructor Mrs. Crisler Room 428 Office Hours 2:42-3:15 M,T,W,TH 2:00-3:15 F E-mail jcrisler@satsumaschools.com Phone 380-8190 Twitter Joy Crisler @ shsgovteach Economics : Macroeconomics

More information

Part One. What Is Economics?

Part One. What Is Economics? Part 1: What Is Economics? 1 Part One What Is Economics? This opening Part of the book provides an introduction to economics. The central themes of Chapter 1 are scarcity, choice, opportunity cost, and

More information

ECONOMICS REVIEW FINAL EXAM

ECONOMICS REVIEW FINAL EXAM ECONOMICS REVIEW FINAL EXAM UNIT 1 INTRO TO ECONOMICS FINAL EXAM REVIEW Unit 1 Economics is the study of how people satisfy their wants and needs when there are limited, or scarce, resources Microeconomics

More information

AP Economics Final Exam Krugman2014v1

AP Economics Final Exam Krugman2014v1 AP Economics Final Exam Krugman2014v1 Multiple Choice Identify the choice that best completes the statement or answers the question. Module 1 1. Scarcity in economics means: 2 2. Suppose people in households

More information

ECO401 Current Online 85 Quizzes Question Repeated ignore In Green color are doubted one

ECO401 Current Online 85 Quizzes Question Repeated ignore In Green color are doubted one ECO401 Current Online 85 Quizzes Question Repeated ignore In Green color are doubted one Question # 1 of 15 ( Start time: 01:24:42 PM ) Total Marks: 1 A person with a diminishing marginal utility of income:

More information

consumption function

consumption function 1 Every day you make choices on what to do with the money you have. Should you splurge on a restaurant meal or save money by eating at home? Should you buy a new car, if so how expensive of a model? Should

More information

Aggregate Demand Quiz.

Aggregate Demand Quiz. Aggregate Demand Quiz www.onestudenttoanother.wordpress.com What does aggregate demand express? (A) The quantity of goods and services demanded in an economy (B) The quantity of goods and services produced

More information

In this chapter, look for the answers to these questions

In this chapter, look for the answers to these questions In this chapter, look for the answers to these questions What are economists two roles? How do they differ? What are models? How do economists use them? What are the elements of the Circular-Flow Diagram?

More information

6) Refer to Table 2-1. What is Finland's opportunity cost of producing one cell phone?

6) Refer to Table 2-1. What is Finland's opportunity cost of producing one cell phone? Principle of Macroeconomics, Chapter two Chapter three Summer B, 2017, FIU Chapter two 1) The principle of is that the economic cost of using a factor of production is the alternative use of that factor

More information

THE BEHAVIOUR OF INTEREST RATES

THE BEHAVIOUR OF INTEREST RATES Mishkin/Serletis The Economics of Money, Banking, and Financial Markets Sixth Canadian Edition Chapter 5 THE BEHAVIOUR OF INTEREST RATES Copyright 2017 Pearson Canada Inc. Learning Objectives 1. Identify

More information

Chapter 5. Market Equilibrium 5.1 EQUILIBRIUM, EXCESS DEMAND, EXCESS SUPPLY

Chapter 5. Market Equilibrium 5.1 EQUILIBRIUM, EXCESS DEMAND, EXCESS SUPPLY Chapter 5 Price SS p f This chapter will be built on the foundation laid down in Chapters 2 and 4 where we studied the consumer and firm behaviour when they are price takers. In Chapter 2, we have seen

More information

ECO401 Current Online Quiz#5 500 Solved MCQs By http://vustudents.ning.com Question # 1 of 15 ( Start time: 05:41:35 AM ) Total Marks: 1 Which of the following will happen if there is an increase in the

More information

Topic 3. Demand and Supply

Topic 3. Demand and Supply Econ 103 Topic 3 page 1 Topic 3 Demand and Supply Text reference: Chapter 3 and 4. Assumptions of the competitive model. Demand: -Determinants of demand -Demand curves -Consumer surplus -Divisibility -

More information

Econ 102 Short Run Fluctuation: AS/AD

Econ 102 Short Run Fluctuation: AS/AD Econ 102 Short Run Fluctuation: AS/AD 1. Be sure to read your copy of the Wall Street Journal every weekday, looking especially for items related to the material in this course. Find an article in this

More information

INCREASE IN AGGREGATE DEMAND CAUSES

INCREASE IN AGGREGATE DEMAND CAUSES 11 April, 2018 INCREASE IN AGGREGATE DEMAND CAUSES Document Filetype: PDF 270.02 KB 0 INCREASE IN AGGREGATE DEMAND CAUSES When we say the aggregate demand has increased we are actually describing a situation

More information

Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS MIDTERM I , Tuesday 13:00 Section 03 TYPE B

Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS MIDTERM I , Tuesday 13:00 Section 03 TYPE B NAME: NO: SECTION: Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS MIDTERM I 15.03.2016, Tuesday 13:00 Section 03 TYPE B Do not forget to write your full name,

More information

Unit 7 Problem Set. b. Suppose that a huge wave of corporate downsizing leads many terminated employees to open their own businesses.

Unit 7 Problem Set. b. Suppose that a huge wave of corporate downsizing leads many terminated employees to open their own businesses. Goldwasser AP Microeconomics NAME Unit 7 Problem Set 1. In 2007, national income in the United States was $11,186.9 billion. In the same year, 137 million workers were employed, at an average wage of $57,526

More information

Part II: Economic Growth. Part I: LRAS

Part II: Economic Growth. Part I: LRAS LRAS & LONG-RUN EQUILIBRIUM - 1 - Part I: LRAS 1) The quantity of real GDP supplied at full employment is called A) hypothetical GDP. B) short-run equilibrium GDP. C) potential GDP. D) all of the above.

More information

The University of Zambia School of Humanities and Social Sciences The Department of Economics

The University of Zambia School of Humanities and Social Sciences The Department of Economics The University of Zambia School of Humanities and Social Sciences The Department of Economics ECN 1115 INTRODUCTION TO MICRO ECONOMICS- ASSIGNMENT 1 Attempt ALL Questions and briefly explain why your answer

More information

Exam #1 Time: 1h 15m Date: February Instructor: Brian B. Young. Multiple Choice. 2 points each

Exam #1 Time: 1h 15m Date: February Instructor: Brian B. Young. Multiple Choice. 2 points each Economics 211 Macroeconomic Principles Exam #1 Time: 1h 15m Date: 19 21 February 2013 Name The value of this exam is 100 points plus 10 points for the Bonus Question. Instructor: Brian B. Young Please

More information

Building a Model of Aggregate Demand and Aggregate Supply *

Building a Model of Aggregate Demand and Aggregate Supply * OpenStax-CNX module: m63807 1 Building a Model of Aggregate Demand and Aggregate Supply * OpenStax Based on Building a Model of Aggregate Demand and Aggregate Supply by OpenStax This work is produced by

More information

Intermediate Macroeconomics

Intermediate Macroeconomics Intermediate Macroeconomics ECON 3312 Lecture 2 William J. Crowder Ph.D. Mercantilism Economic Nationalism Beggar-thy-neighbor policies Bullionism Regulate everything! Trade restrictions Monopoly rights

More information

REVIEW FOR TEST I (Chapters 1-4 of Case, Fair, Oster text) HCCS Spring Branch Campus Instructor: J.H. Ewing. What Economics is About

REVIEW FOR TEST I (Chapters 1-4 of Case, Fair, Oster text) HCCS Spring Branch Campus Instructor: J.H. Ewing. What Economics is About REVIEW FOR TEST I (Chapters 1-4 of Case, Fair, Oster text) HCCS Spring Branch Campus Instructor: J.H. Ewing What Economics is About Economics deals with the human condition that arises when Wants > Limited

More information

Learning objectives. The Science of Macroeconomics slide 1. Important issues in macroeconomics

Learning objectives. The Science of Macroeconomics slide 1. Important issues in macroeconomics Learning objectives This chapter introduces you to the issues macroeconomists study the tools macroeconomists use some important concepts in macroeconomic analysis The Science of Macroeconomics slide 1

More information

An economist will define the exchange rate between two currencies as the:

An economist will define the exchange rate between two currencies as the: ECO401 QUIZZ MORE Question # 1 of 15 ( Start time: 01:19:25 AM ) Total Marks: 1 The law of diminishing marginal utility indicates that the demand curve is: Vertical. U shaped. Upward sloping. Downward

More information

Chapter 1 The Science of Macroeconomics

Chapter 1 The Science of Macroeconomics Chapter 1 The Science of Macroeconomics Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved Learning Objectives

More information

Supply and Demand Theory and Economic Cycle

Supply and Demand Theory and Economic Cycle Supply and Demand Theory and Economic Cycle Introduction The basic supply and demand theory is vital for understanding investments A simple illustration of the supply and demand for oil with graphical

More information

Microeconomics: MIE1102

Microeconomics: MIE1102 TEXT CHAPTERS TOPICS 1, 2 ECONOMICS, ECONOMIC SYSTEMS, MARKET ECONOMY 3 DEMAND AND SUPPLY. MARKET EQUILIBRIUM 4 ELASTICITY OF DEMAND AND SUPPLY 5 DEMAND & CONSUMER BEHAVIOR 6 PRODUCTION FUNCTION 7 COSTS

More information

Chapter 2 The Basics of Supply and Demand

Chapter 2 The Basics of Supply and Demand Chapter 2 The Basics of Supply and Demand Read Pindyck and Rubinfeld (2013), Chapter 2 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 Chapter

More information

13-1 L ECTURE LAUNCHER PAGES PAGES

13-1 L ECTURE LAUNCHER PAGES PAGES 13-1 L ECTURE LAUNCHER When Hurricane Andew blew through Southern Florida it was a disaster, but the GDP recorded it as a $15 billion boon to the economy. What does GDP measure? Under what circumstances

More information

Edexcel Economics AS-level

Edexcel Economics AS-level Edexcel Economics AS-level Unit 1: Markets in Action Topic 5: Wage Determination in Labour Markets 5.1-5.2 The demand for and the supply of labour Notes The main influences on demand and supply in labour

More information

UNIVERSITY OF MALTA THE MATRICULATION EXAMINATION ADVANCED LEVEL

UNIVERSITY OF MALTA THE MATRICULATION EXAMINATION ADVANCED LEVEL UNIVERSITY OF MALTA UNIVERSITY OF MALTA THE MATRICULATION EXAMINATION ADVANCED LEVEL ECONOMICS MAY 2016 EXAMINERS REPORT Part 1: Statistical Information AM EXAMINERS REPORT MAY 2016 Table 1 shows the distribution

More information

UNIVERSITY OF TORONTO Faculty of Arts and Science. August Examinations 2007 ECO 100Y1 Y. Duration: 3 hours

UNIVERSITY OF TORONTO Faculty of Arts and Science. August Examinations 2007 ECO 100Y1 Y. Duration: 3 hours UNIVERSITY OF TORONTO Faculty of Arts and Science August Examinations 2007 ECO 100Y1 Y Duration: 3 hours Examination Aids allowed: Non-programmable calculators only INSTRUCTIONS: Students are required

More information

Economics N. Gregory Mankiw. The Markets for the Factors of Production. In this chapter, look for the answers to these questions CHAPTER

Economics N. Gregory Mankiw. The Markets for the Factors of Production. In this chapter, look for the answers to these questions CHAPTER Seventh Edition Principles of Economics N. Gregory Mankiw CHAPTER 18 The Markets for the Factors of Production In this chapter, look for the answers to these questions hat determines a competitive firm

More information

Economics. Synopsis. 1. Economic Concepts, Issues and Tools. 2. An Overview of Economics. Sections. Learning Summary. Sections

Economics. Synopsis. 1. Economic Concepts, Issues and Tools. 2. An Overview of Economics. Sections. Learning Summary. Sections Synopsis Economics 1. Economic Concepts, Issues and Tools 1.1 Introduction 1.2 Scarcity and Choice 1.3 Preferences, Resources and Economic Efficiency 1.4 Marginal Analysis and Opportunity Cost 1.5 Different

More information

Week 1 (Part 1) Introduction Econ 101

Week 1 (Part 1) Introduction Econ 101 Week 1 (art 1) Introduction Econ 101 reliminary Concepts (Chapter 2 g 38-41 & 47-50) Economics is the study of how individuals and societies choose to use scarce resources that nature and previous generations

More information

The Basics of Supply and Demand

The Basics of Supply and Demand C H A P T E R 2 The Basics of Supply and Demand Prepared by: Fernando & Yvonn Quijano CHAPTER 2 OUTLINE 2.1 Supply and Demand 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities

More information

SCHOOL DISTRICT OF THE CHATHAMS CURRICULUM

SCHOOL DISTRICT OF THE CHATHAMS CURRICULUM CONTENT AREA(S): Social Studies COURSE/GRADE LEVEL(S): AP Economics/ 10th - 12th Grade I. Course Overview Advanced Placement Economics provides students with a thorough understanding of the principles

More information

EOCT Test Semester 2 final

EOCT Test Semester 2 final EOCT Test Semester 2 final 1. The best definition of Economics is a. The study of how individuals spend their money b. The study of resources and government c. The study of the allocation of scarce resources

More information