Question 1

A monetarist economist believes that if the economy was left alone, it would rarely operate at full employment.

Accepted Answer

Monetarist economists, following the theories of Milton Friedman, generally believe that the economy is inherently stable and will naturally adjust to operate at or near full employment, provided that the money supply is managed correctly to avoid inflation or deflation.

Question 2

Fluctuations in aggregate demand and aggregate supply explain why real GDP fluctuates.

Accepted Answer

Fluctuations in aggregate demand and aggregate supply are key factors that cause the real GDP to fluctuate, as they determine the overall level of spending and production in an economy.

Question 3

-The table above shows Purpleland's economy aggregate demand and supply schedules. Purpleland's potential GDP is $675 billion.
a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in Purpleland?
c) What is the long-run equilibrium real GDP?
d) Is Purpleland's short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap (if any)? What is the inflationary gap (if any)?
e) Suppose aggregate demand increases by $150 billion. Plot the new aggregate demand curve. How do real GDP and the price level change in the short run?
f) Is Purpleland's new short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap (if any)? What is the inflationary gap (if any)?

Accepted Answer

The answer of 
-The table above shows Purpleland's economy aggregate...

Question 4

The business cycle occurs because aggregate demand and aggregate supply change at uneven rates.

Accepted Answer

The business cycle occurs due to fluctuations in aggregate demand and aggregate supply, which change at uneven rates, leading to periods of economic expansion and contraction.

Question 5

-The table above shows Yellowland's economy aggregate demand and supply schedules. Yellowland's potential GDP is $300 billion.
a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in Yellowland?
c) What is the long-run equilibrium real GDP?
d) Is Yellowland's short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap (if any)? What is the inflationary gap (if any)?
e) Suppose aggregate supply decreases by $150 billion. Plot the new aggregate supply curve. How do real GDP and the price level change in the short run?
f) Is Yellowland's new short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap (if any)? What is the inflationary gap (if any)?

Accepted Answer

The answer of 
-The table above shows Yellowland's economy aggregate...

Question 6

The Keynesian theory of business cycle views volatile expectations of future sales and profits as the main source of economic fluctuations.

Accepted Answer

Keynesian theory emphasizes the role of aggregate demand and how changes in expectations about future economic conditions can lead to fluctuations in investment and consumption, causing business cycles.

Quiz 10: Aggregate Supply and Aggregate Demand

A monetarist economist believes that if the economy was left alone, it would rarely operate at full employment.

Fluctuations in aggregate demand and aggregate supply explain why real GDP fluctuates.

The business cycle occurs because aggregate demand and aggregate supply change at uneven rates.

The Keynesian theory of business cycle views volatile expectations of future sales and profits as the main source of economic fluctuations.