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Chapter 23: Q 7. (page 617)
鈥淚f prices and wages are perfectly flexible, then and changes in aggregate demand have a smaller effect on output.鈥� Is this statement true, false, or uncertain? Explain your answer.
The statement is false.
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What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?
Suppose the public believes that a newly announced anti-inflation program will work and so lowers its expectations of future inflation. What will happen to aggregate output and the inflation rate in the short run?
Using an aggregate demand and supply graph, illustrate and describe the following:
a. The short-run effects of an increase in the money supply.
b. The long-run effects of an increase in the money supply.
Suppose the president gets Congress to pass legislation that encourages investment in research and the development of new technologies. Assuming this policy leads: to a positive productivity change for the U.S. economy, use aggregate demand and supply analysis to predict the effects on inflation and output. Demonstrate these effects on a graph.
In many countries around the world, the population is aging and large segments of the population are retiring or close to retirement. What effect would this have on a country鈥檚 long-run aggregate supply curve? What will happen to aggregate output as a result?
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