Chapter 10 Review Sheet
Describe the aggregate demand curve.
Why does it have the shape it does?
Describe:
Interest rate effect
Wealth/real balances effect
Foreign purchase effect/foreign sector substitution effect
What is the relationship between interest rates and investment?
Define determinants of Aggregate Demand
List the determinants of AD:
How will MPC/MPS affect the degree to which AD shifts?
Describe the long-run aggregate supply curve.
What does the long-run AS curve assumes about wages and other resource prices?
What does the aggregate supply curve show?
Describe the short-run aggregate supply curve.
Define determinants of aggregate supply.
List the determinants of aggregate supply:
Draw the following, and indicate for each what happens to Price level and output (GDP):
Increase in Aggregate demand
Increase in Aggregate supply
Decrease in Aggreage demand
Decrease in Aggregate supply
How does one calculate per unit cost of production?
What does productivity measure?
Where do the equilibrium price level and level of real output occur? (think AD/AS diagram)
Graph demand-pull inflation.
Graph cost-push inflation.
Explain “sticky wages”.
Why are wages stickier downward than upward?
What is a price war?
Why is this concept relevant for potential wage reductions?