How would economic growth and mild inflation be depicted in the extended aggregate demand and aggregate supply model?
What will be an ideal response?
In the extended aggregate demand and aggregate supply model, economic growth would be shown by a rightward shift in the vertical long-run aggregate supply curve, with the amount of the shift representing the increase in real GDP, or economic growth, over time. At first level of real GDP, the price level would be determined by the intersection of the aggregate demand curve and the aggregate supply curve. With economic growth the vertical long-run aggregate supply curve would shift to an increased level of real GDP. At that new higher level of real GDP, aggregate demand would increase and find a new equilibrium where aggregate demand equaled aggregate supply. The increase in aggregate demand would push up the price level somewhat at the new higher level of real GDP, and thus the economy would experience economic growth over time with mild inflation.
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The Fed can use expansionary monetary policy to lower interest rates to stimulate aggregate demand
Indicate whether the statement is true or false
The purpose of an expansionary money policy is to:
a. Decrease aggregate demand b. Increase investment demand c. Decrease investment demand d. Increase aggregate demand
During recessions, automatic stabilizers work to reduce government expenditures and increase government revenues.
Answer the following statement true (T) or false (F)
The market supply curve for labor in a perfectly competitive labor market:
A) is horizontal or perfectly elastic. B) is vertical or perfectly inelastic. C) can be derived by vertically adding the individual supply curves of labor. D) can be derived by horizontally adding the individual supply curves of labor.