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William A. McEachern - Chapter Titles ‘Introduction to Macroeconomics’,

‘Aggregate Expenditure and Aggregate Demand,’ & ‘Aggregate Supply’

Chapter ‘Introduction to Macroeconomics’

Q8.      Why does a decrease of the aggregate demand curve result in less employment, given an aggregate supply curve?

Q9.      Is it possible for the price level to fall while production and employment both rise? If it is possible, how could this happen? If is is not possible, explain why not.

P15.      Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both. Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case?

1. The price level changes –
2. Consumer confidence declines –
3. The supply of resources increases –
4. The wage rate increases –

Chapter ‘Aggregate Supply’

Q1.      In the short run, prices may rise faster than costs. This chapter discusses why this might happen. Suppose that labor and management agree to adjust wages continuously for any changes in the price level. How would such adjustments affect the slope of the aggregate supply curve?

Q2.      Define the economy’s potential output. What factors help determine potential output?

Q6.      In interpreting the short-run aggregate supply curve, what does the adjective short-run mean? Explain the role of labor contracts along the SRAS curve.           

Q13.    Determine whether each of the following, other things held constant, would lead to an increase, a decrease, or no change in long-run aggregate supply:

1. An improvement in technology –
2. A permanent decrease in the size of the capital stock –
3. An increase in the actual price level –
4. An increase in the expected price level –
5. A permanent increase in the size of the labor force –

Answer 1

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8.

A decrease in aggregate demand shifts the AD curve to the left, keeping AS unchanged. This leads to a decrease in the price level as well as equilibrium output in the economy.

Now, a decrease in price level would mean lower profit margins for sellers, who will then respond by reducing production in order to not let profits fall. This would mean cutting down on the production levels. This means employment of labor would also fall, or unemployment would increase as fewer labor is now needed to produce less output.

Thus, employment falls as AD falls .