Introduction to Aggregate Demand

According to Keynesian analysis,

• wages adjust rapidly and this causes prices to rapidly change as well.

• wages adjust slowly and this causes prices to rapidly change in compensation.

• wages adjust slowly and this causes prices to slowly change as well.

• wages adjust rapidly and this causes prices to slowly change in compensation.

An economy is more likely to avoid economic fluctuations if

• prices adjust slowly.

• prices adjust quickly.

• prices don’t send signals to producers and consumers.

• prices prevent economic coordination.

Which of the following statements is correct?

• Flexible wages lead to sticky prices and hamper the economy’s ability to bring demand and supply into balance in the short run.

• Sticky wages cause sticky prices and hamper the economy’s ability to bring demand and supply into balance in the short run.

• Sticky wages and sticky prices are an important aspect of economic stability, bringing demand and supply into balance in the long run.

• In order to bring supply and demand into balance in the long run, flexible wages and prices must become sticky wages and prices.

According to the textbook discussion of the macroeconomic consequences of sticky prices, in the macroeconomic short run, both formal and informal contracts between firms mean that

• changes in supply will be reflected primarily in changes in prices, not output.

• changes in demand will be reflected primarily in changes in output, not prices.

• changes in supply and demand will be reflected in changes in prices, not output.

• changes in factors other than supply and demand will be reflected in changes in output, not prices.

Which components of GDP are also components of aggregate demand?

• consumption and investment

• government spending and net exports

• all of the above

• none of the above

The increase in spending that occurs because the real value of money increases when the price level falls is called

• the wealth effect.

• the interest rate effect.

• the foreign trade effect.

• the income effect.

A higher domestic price level will result in

• higher imports.

• higher exports.

• probably both higher imports and higher exports.

• higher net exports.

Consider the consumption function C = Ca + bY. Which part of this function is called the autonomous consumption spending?

• Ca

• b

• bY

• Ca + bY