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8 Cards in this Set
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- Back
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Why is the AD curve negatively sloped?
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at higher P, demand for nominal money is high, people try to sell bonds, price of bonds fall, interest rates rise, spending and output fall.
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Slope of AD depends on
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d2 (interest sensitivity on money demand), b2, (interest sensitivity on investment), c1 (MPC), b1 (MPI)
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What causes shifts of AD to the right
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increase in G, increase in Co, increase in Bo, increase in M, increase in T. P will cause movements, not shifts
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when unemployment is greeater than natural? When unemployment is less than natural?
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greater: there are deflationary pressures.
less: inflationary |
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As unemployment rises, what happens to the price level?
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price level falls
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Why is the AS curve upward sloping?
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higher output requires more labor, unemployment falls, nominal wages increases, price levels increase.
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In the medium run, what is the effect of output on P
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nothing.
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If price levels are higher than expected
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wage setters will increase expectations, AS curve shifts upward, the higher price level causes nominal wages increase, higher price level.
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