Chapter 1. Section 8(20), Problem 4

Step 1

Work It Out

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You must read each slide, and complete any questions on the slide, in sequence.

Question

In the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change.

As a result of an increase in the value of the dollar in relation to other currencies, American producers now pay less in dollar terms for foreign steel, a major commodity used in production. This will cause a +aeFsNTldxIPqI0XVr4daMZZLaVQ2JFQWwruZQ== the aggregate fdAs6HHtxtTdK57Jb3QfGCTTsbo= curve to the xzos8VtrdQNwo4XIS8SK6Q==.

Incorrect. As the value of the dollar in terms of other currencies increases and American producers pay less in dollar terms for foreign steel, producers’ profit per unit increases and they are willing to supply a greater quantity of aggregate output at any given aggregate price level. The short-run aggregate supply curve will shift to the right. For further review see the section, “The AD-AS Model.”

Correct. As the value of the dollar in terms of other currencies increases and American producers pay less in dollar terms for foreign steel, producers’ profit per unit increases and they are willing to supply a greater quantity of aggregate output at any given aggregate price level. The short-run aggregate supply curve will shift to the right. For further review see the section, “The AD-AS Model.”

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Step 2

Question

In the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change.

An increase in the quantity of money by the Federal Reserve increases the quantity of money that people wish to lend, lowering interest rates. This will cause a 5PCm2QUB130rPb8YdzlYf0Y5i1k8lkwl5Ro33A== the aggregate ydtncxPy4jWPZjitV933hu/nI3I= curve to the q4UxgxeZ+9Cmudl4/ePhDQ==.

Incorrect. As the Federal Reserve increases the quantity of money, banks have more money, which they are willing to lend out, and interest rates fall. The lower interest rates will increase investment spending and consumer spending, leading to a greater quantity of aggregate output demanded at any given aggregate price level. The aggregate demand curve will shift to the right. For further review see the section, “The AD-AS Model.”

Correct. As the Federal Reserve increases the quantity of money, banks have more money, which they are willing to lend out, and interest rates fall. The lower interest rates will increase investment spending and consumer spending, leading to a greater quantity of aggregate output demanded at any given aggregate price level. The aggregate demand curve will shift to the right. For further review see the section, “The AD-AS Model.”

An increase in the quantity of money by the Federal Reserve increases the quantity of money that people wish to lend, lowering interest rates. This will cause a ______ the aggregate ______ curve to the ______.

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Step 3

Question

In the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change.

Greater union activity leads to higher nominal wages. This will cause a 5PCm2QUB130rPb8YdzlYf0Y5i1k8lkwl5Ro33A== the aggregate PuLKO2w5dBBF8OuAiN09YfUEOv8= curve to the yoX+FmCfDVxx7+iS0HQtzg==.

Correct. If unions are able to negotiate higher nominal wages for a large portion of the workforce, this will increase production costs and reduce profit per unit at any given aggregate price level. The short-run aggregate supply curve will shift to the left. For further review see the section, “The AD-AS Model.”

Incorrect. If unions are able to negotiate higher nominal wages for a large portion of the workforce, this will increase production costs and reduce profit per unit at any given aggregate price level. The short-run aggregate supply curve will shift to the left. For further review see the section, “The AD-AS Model.”

Greater union activity leads to higher nominal wages. This will cause a ______ the aggregate ______ curve to the ______.

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Step 4

Question

In the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change.

A fall in the aggregate price level increases the purchasing power of households’ and firms’ money holdings. As a result, they borrow less and lend more. This will cause a 2yHX9foD4lLTq3u185jg7XJds/Obk+Csjd7vWw== the aggregate 95Xou3rULj4APUfMsJoaA5CEZ78= curve to the xzos8VtrdQNwo4XIS8SK6Q==.

As the aggregate price level falls and the purchasing power of households’ and firms’ real money holdings increases, the public tries to reduce its money holdings by borrowing less and lending more. So interest rates fall, leading to a rise in both investment spending and consumer spending. This is the interest rate effect of a change in the aggregate price level, represented as a movement down along the aggregate demand curve. For further review see the section, “The AD-AS Model.”

A fall in the aggregate price level increases the purchasing power of households’ and firms’ money holdings. As a result, they borrow less and lend more. This will cause a ______ the aggregate ______ curve to the ______.

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