Chapter 33 (Pgs 739-772) (Chapter 19 Online)

Aggregate Demand and Aggregate Supply

1. What is a recession? What is the relationship between recession and
depression?
2. How do economists use the Aggregate Demand/Aggregate Supply
Graph?
3. Why is the term Business Cycle misleading?
4. Why do most macroeconomic indicators fluctuate together?
5. What is the relationship between output and unemployment?
6. Why does money not matter in classical economics?
7. Why do economists believe the classical economy in the long-run
and not the short-run?
8. What is the purpose of the Aggregate Demand/Aggregate Supply
Graph (AD/AS)?
9. Describe Aggregate Demand.
10.
Describe Aggregate Supply.
11.
How is the Aggregate Demand/Aggregate Supply Graph
different from a typical Supply/Demand Graph?
12.
What are the four components of Aggregate Demand?
13.
What is the Wealth Effect, and how does it affect Aggregate
Demand?
14.
What is the Interest Rate Effect, and how does it affect
Aggregate Demand?
15.
What is the Exchange-Rate Effect, and how does it affect
Aggregate Demand?
16.
How can government change personal consumption?
a. What would cause an increase in consumption?
b. What would cause a decrease in consumption?
17.
How can government change investments?
18.
How does the government affect Aggregate Demand via
spending?
19.
How do Net Exports affect Aggregate Demand?
20.
What does Long-Run Aggregate Supply represent?
21.
How does Long-Run Aggregate Supply relate to the Production
Possibilities Curve?
22.
Illustrate the Long-Run Aggregate Supply Curve?
23.
Why is the Long-Run Aggregate Supply Curve vertical?
24.
Why does the Long-Run Aggregate Supply Curve always at the
natural rate of unemployment?
25.
How can labor cause the Long-Run Aggregate Supply Curve to
increase and decrease?
26.
How does capital cause the Long-Run Aggregate Supply Curve
to increase and decrease?
27.
How do changes in natural resources cause the Long-Run
Aggregate Supply Curve to increase and decrease?

28.
How do changes in technology cause the Long-Run Aggregate
Supply Curve to increase and decrease?
29.
How do economists utilize AD/AS depict long-run growth and
inflation?
30.
How is Short-Run Aggregate Demand different from Short-run
Aggregate different?
31.
Why is the Short-Run Aggregate Supply Curve upward sloping?
32.
What is the Sticky-Wage theory?
33.
What factors will cause Aggregate Supply Curve to shift to the
left and to the right?
34.
Illustrate an economy operating at full employment. Utilize
Microsoft Paint to illustrate this on the AD/AS graph.
35.
Illustrate an economy operating in a recession. Utilize
Microsoft Paint to illustrate this on the AD/AS graph.
36.
Illustrate an economy operating in an inflationary zone. Utilize
Microsoft Paint to illustrate this on the AD/AS graph.
37.
How do shifts in Aggregate Demand differ from shifts in ShortRun Aggregate Supply?
38.
Show how stagflation can occur utilizing the AD/AS graph.
Utilize Microsoft Paint to illustrate this on the AD/AS graph.
39.
Why do policy makers feel that stagflation is the worst
possible economic scenario?

Chapter 34 (Pgs. 777-798) (Online Chapter 20)

The Influence of Monetary and Fiscal Policy on Aggregate Demand
1. What two tools does the government have to manipulate the
economy?
2. Describe each of the following effects:
a. The Wealth Effect
b. The Interest Rate Effect
c. The Exchange Rate Effect
3. What is the theory of liquidity preference?
4. Why does the Federal Reserve manipulate the money supply?
5. Why is the Money Supply Curve vertical?
6. Increasing the Money Supply causes what to happen with the
interest rate?
7. Decreasing the Money Supply causes what to happen with the
interest rate?
8. Why would a person chose to hold on to money?
9. Illustrate the Money Market. Use Microsoft paint to accomplish this
task.
10.
What does the intersection of Money Demand and Money
Supply represent?
11.
How do people react to high interest rates?
12.
How do people react to low interest rates?
13.
How does an increase in the interest rate effect aggregate
demand?
14.
How does a decrease in the interest rate effect aggregate
demand?
15.
When in a recession, what should the Federal Reserve do?
Show both the Money Market Graph, and the Aggregate Demand
Aggregate Supply Graph.
16.
What in inflation, what should the Federal Reserve do? Show
both the Money Market Graph, and the Aggregate Demand
Aggregate Supply Graph.
17.
How does the Federal Reserve target an interest rate?
18.
How will the Federal Reserve react to a booming stock market?
19.
How will the Federal Reserve react to a slumping stock
market?
20.
What is Fiscal Policy?
21.
How does Fiscal Policy effect Aggregate Demand?
22.
What is the Multiplier Effect?

23.
What is the Crowding-Out Effect?
24.
Why is it important to understand the multiplier effect?
25.
What is the difference between a marginal propensity to
consume, and a marginal propensity to save.
26.
What are the two formulas used to calculate the multiplier
effect?
27.
Calculate the Multiplier for the following amounts:
Marginal
Multiplier
Propensity to Effect
Consume
.1
.2
.25
.5
.75
.8
.9
28.
Why does the multiplier effect react to consumption,
investment, government purchases, and net exports?
29.
When does the government increase the Demand for Money?
30.
What are the negative consequences of the crowding out
effect?
31.
How do tax cuts affect aggregate demand?
32.
Why is it important to know the multiplier effect and crowding
out effect when deciding fiscal policy?
33.
What fiscal policy actions should government take when
battling recession?
34.
What fiscal policy actions should government take when
battling inflation?
35.
How to John M. Keynes influence public policy?
36.
What are some criticisms against stabilizations?
37.
What are automatic stabilizers?
38.
How does the tax system act as an automatic stabilizer?
39.
How does government spending act as an automatic stabilizer?
40.How do automatic stabilizers help stabilize the economy?