Chapter 9-11 Review

# Chapter 9-11 Review - Chapter11and9:AD/ASmodel...

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Outline for Review x From the IS-LM model to the AD curve o Why AD curve slopes downward ± When prices change ĺ M/P change ĺ LM shift ĺ change r and Y 9 AD plot a negative relationship between P and Y 9 A change in come in the IS-LM model resulting from a change in the price level represents a movement along the AD curve . o What causes the AD curve to shift ± How monetary policy shift the AD curve ± How fiscal policy shift the AD curve 9 A change in income in the IS-LM model for a given price level represents a shift in AD curve x AS curve: the vertical AS, the horizontal AS, and the upward-sloping AS curves x The IS-LM model in the short run and long run o Short- ±²³ ´³´µ¶·¸· ¹·Ǥ º»¼ Ǯ·¼µ½ - ¾¿±±¼¾º¸¹¼ À¼¾»´³¸·Àǯ o Show the short-run and long-run analysis of policies using the IS-LM model and AD/AS model ± Short run ĺ when price is fixed ± Long run ĺ ZKHQ SULFHV DUH DOORZHG WR FKDQJH o Money neutrality Practice Problems 1. The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. A) positive; money supply B) negative; money supply C) positive; price level D) negative; price level 2. When an aggregate demand curve is drawn with real GDP ( Y ) along the horizontal axis and the price level ( P ) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: A) downward and to the left. B) downward and to the right.

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