Exercises

What are the differences between short-run and long-run aggregate supply?

Why AD curve is downward sloping? Explain.

Why SRAS curve is upward sloping? Explain.

What are the differences between inflationary gap and deflationary gap?

What are the differences between domestic goods and foreign goods?

Draw, with an AS-AD diagram, the effect on output when consumption expenditure increases in the short run.

Draw, with an AS-AD diagram, the effect on output when investment expenditure decreases in the short run.

Draw, with an AS-AD diagram, the effect on price level when government expenditure increases in the short run.

Draw, with an AS-AD diagram, the effect on output and price level when government raises the profit tax rate in the short run.

Draw, with an AS-AD diagram, the effect on output and price level when domestic products become more attractive overseas in the short run.

When there is an economic recovery in the country’s major trading partner, AD shifts __________ (leftwards/rightwards) in the short run and SRAS shifts __________ (leftwards/rightwards/does not shift) in the long run.

Suppose the government greatly increases the tax allowance on continuing education. AD shifts __________ (leftwards/rightwards) in the short run, SRAS shifts __________ (leftwards/rightwards/does not shift) in the long run, and LRAS shifts __________ (leftwards/rightwards/does not shift) in the long run.

Deflationary (output) gap will be eliminated by a __________ (leftward/rightward) shift of the aggregate demand curve when the market adjusts from short run equilibrium to long run equilibrium.

The government bought bonds from the public and raised the tax allowance at the same time will lead to a/an ___________ (increase/decrease) in aggregate output.

The government sold bonds to the public and reduced transfer payment to the poor at the same time will lead to a/an ___________ (increase/decrease) in price level.