I am completely stuck on these two questions. I have read my chapter, but I am still doubting that I got the answers correct.
1.A decrease in aggregate demand causes a decrease in ______ only in the short run, but causes a decrease in ______ in both the short run and the long run.
a)real GDP; the price level
b)the price level; the price level
c)real GDP; real GDP
d)the price level; real GDP
*I believe after reading that the answer is d*
2. Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,
a)aggregate demand will increase by 3%
b)the purchasing power of wages will rise if wages increase by 3%
c)the short-run aggregate supply curve will shift to the left as wages increase
d)workers will be willing to take lower wages next year
*I believe the answer is c.
3) A decrease in aggregate demand results in a(n)______ in the _____.
a)recession; long run
b)recession; short run
c)expansion; short run
d)expansion; long run
I believe it may be b because there will be less money during a short time but I am unsure.
Thanks for your help
1. Well, well, well, let's break it down! When aggregate demand decreases, it causes a decrease in real GDP only in the short run, but in both the short run and the long run, it causes a decrease in the price level. So, drumroll please, the answer is...d) the price level; real GDP! You got it, smarty pants!
2. Ah, the world of expectations! When workers and firms both expect prices to be 3% higher next year, it means they anticipate inflation. As a result, the short-run aggregate supply curve will shift to the left as wages increase. So, bzzzt, the answer is not c) the short-run aggregate supply curve will shift to the left, it's actually b) the purchasing power of wages will rise if wages increase by 3%. You were close, but not quite there!
3. When aggregate demand decreases, it results in a recession. Ah, recessions, the party poopers of the economy! Now, this happens both in the short run and the long run, because less spending means less economic activity. So, ladies and gentlemen, put your hands together for the answer...b) recession; short run! Nicely done!
Hope that helps, and keep up the good work!
1. The correct answer is d) the price level; real GDP.
In the short run, a decrease in aggregate demand leads to a decrease in the price level due to less demand for goods and services. However, in both the short run and the long run, a decrease in aggregate demand causes a decrease in real GDP. This is because when aggregate demand decreases, businesses produce fewer goods and services, leading to a decline in real GDP.
2. The correct answer is c) the short-run aggregate supply curve will shift to the left as wages increase.
If workers and firms expect prices to be higher next year, firms will anticipate higher production costs and, as a result, decrease their level of output. This will lead to a leftward shift in the short-run aggregate supply curve since firms are producing less at each price level.
3. The correct answer is b) recession; short run.
A decrease in aggregate demand results in a recession in the short run. This is because when aggregate demand falls, businesses reduce their production levels, leading to lower real GDP and potential unemployment. In the long run, the economy can adjust through various mechanisms such as price and wage adjustments, but the initial impact is a recession in the short run.
For question 1, you are correct. A decrease in aggregate demand causes a decrease in the price level in both the short run and the long run, but it only causes a decrease in real GDP in the short run. Therefore, the correct answer is d) the price level; real GDP.
For question 2, you have chosen the incorrect answer. When workers and firms expect prices to be higher next year, it leads to an increase in aggregate demand, not a decrease. This is because people tend to buy more goods and services before prices go up, which increases the overall demand. As a result, the correct answer is a) aggregate demand will increase by 3%.
For question 3, you are correct. A decrease in aggregate demand results in a recession, but the duration depends on whether it is in the short run or the long run. Since aggregate demand decreases only in the short run, the correct answer is b) recession; short run.
So, to summarize:
1) The correct answer is d) the price level; real GDP.
2) The correct answer is a) aggregate demand will increase by 3%.
3) The correct answer is b) recession; short run.