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Test Bank for Macroeconomics Chapter 10 (11th Edition by N. Gregory Mankiw)
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Test Bank for Macroeconomics Chapter10 (11th Edition by N. Gregory Mankiw)
Aggregate Demand Curve (AD) - ANSThe curve that shows the level of real GDP purchased by
consumers, businesses, government and foreigners (net exports) at different possible price
levels during a time period, Ceteris Paribus
Why does the Aggregate Demand Curve slope downward to the right? - ANSReal Balances
Effect, Interest Rate effect and Net Export effect
Real Balances Effect - ANSConsumer spend more on goods and services because lower prices
make their dollars more valuable.
Interest Rate Effect - ANSAn increase in the price level increases borrowing demand and in turn
higher interest rates, which discourages consumer spending.
Net Export Effect - ANSExports (X) decrease and imports (M) increase, which decreases real
GDP through the Net Exports component (X-M).
what can cause shift in the Aggregate Demand Curve? - ANSConsumption (C)
Investments (I)
Government Spending (G)
Net Exports (X-M)
Aggregate Supply Curve (AS) - ANSThe curve that shows the level of real GDP produced at
different price levels during a time period, Ceteris Paribus
Why is the Keynesian Aggregate Supply curve horizontal? - ANSBecause product prices and
wages are fixed or rigid.
3 Ranges og Aggregate Supply Curve - ANSKeynesian Range, Intermediate Range and Classic
Range
How is Macro Equilibrium determined? - ANSEquilibrium occurs where the Aggregate Demand
Curve equals the Aggregate Supply Curve.
What is the effect of an increase in AD in the Keynesian Range of AS? - ANSReal GDP
increases while the price level remains constant.
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