Question 1

Answer the following three questions about the Great Depression.
A) What were the four major shocks that contributed to the Great Depression?
B) Using a graph, show how these shocks affected AD.
C) Did the monetary authorities have a hand in causing and/or exacerbating the Great Depression? Explain.

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Question 2

What types of shocks can be found in the AD-AS model? Why do these shocks not disappear immediately but rather tend to spread across sectors of an economy?

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Question 3

Compare two economies, one that is highly agricultural and another that is highly manufacturing-based. Discuss what types of shocks might be relevant to each of these economies.

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Question 4

Stagflation is a situation in which increased unemployment and lower output growth is accompanied by an increase in inflation. Explain how a negative real shock can lead to stagflation.

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Question 5

Explain why sticky wages tend to amplify negative productivity shocks.

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Question 6

Imagine that an economy experiences a long-lasting banking crisis and that subsequently consumption growth permanently falls. Using the AD-AS model, draw a diagram and explain the effects of the permanent decline in consumption growth on the inflation rate and the real growth rate in both the short run and the long run.

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Question 7

What assumptions about wage and price flexibility are possible in the AD-AS model? What do these different assumptions imply about the slopes of the long-run and short-run aggregate supply curves?

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Question 8

With the aid of a diagram, explain how a shock that raises labor productivity affects the inflation rate and the real growth rate in the long run.

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Question 9

Why is the long-run aggregate supply curve vertical in the AD-AS model?

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Question 10

Using the AD-AS model, show and explain how real GDP growth and inflation would change in both the short run and long run if the growth rate of the money supply increases unexpectedly.

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Question 11

The term "stagflation" was used to describe the occurrence of a recession along with high inflation in the mid-1970s. What kind of shock is required to cause stagflation?

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Question 12

The following question has three parts, which are to be answered independently of each other. Graphically show your response to the following shocks in the AD-AS model:
A) If a new round of consumer pessimism abounds, what would happen to the economy's short-run growth rate?
B) If there is a positive, but temporary, monetary shock, what would happen to the economy's short-run growth rate?
C) If a country's imports temporarily increase, but exports stay the same, what would happen to the economy's short-run growth rate?

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Question 13

Using an AD-AS model, graphically depict an economy operating in a boom and explain what will happen to this economy in the long run.

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Question 14

Suppose consumption growth suddenly falls as a result of a decline in consumer confidence. With the aid of a diagram including the AD and LRAS curves, explain how the change in consumption growth affects the inflation rate and the real growth rate in the long run.

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Question 15

Briefly discuss three factors that can cause an increase in aggregate demand and three factors that can cause a decrease in aggregate demand. What is currently happening to aggregate demand in the United States?

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Question 16

What happened to the U.S. money supply during the early years of the Great Depression?

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Question 17

Discuss the effects of an unexpected increase in the growth rate of the money supply in the AD-AS model.

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Quiz 13: Business Fluctuations: Aggregate Demand and Supply