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
For the first question, a decrease in aggregate demand causes a decrease in the price level only in the short run, but causes a decrease in real GDP in both the short run and the long run. The correct answer is option a) real GDP; the price level. This is because a decrease in aggregate demand leads to reduced spending on goods and services, which in turn leads to a decrease in real GDP (output) both in the short run and the long run. In the short run, prices may not adjust immediately, so there may be a decrease in the price level as well. However, in the long run, prices can adjust, resulting in a decrease in real GDP but not necessarily in the price level.
For the second question, if workers and firms both expect prices to be 3% higher next year than they are this year, it implies an increase in inflation expectations. As a result, the correct answer is option d) workers will be willing to take lower wages next year. When workers anticipate higher prices in the future, they are likely to demand higher wages to compensate for the expected increase in the cost of living. However, if workers expect prices to rise by 3%, they may be more willing to settle for lower wage increases as they would still have a relative increase in their purchasing power.
Regarding the third question, a decrease in aggregate demand results in a recession in the short run. Therefore, the correct answer is option b) recession; short run. When aggregate demand decreases, it leads to decreased spending and reduced economic activity, leading to a contraction in output and potentially causing a recession. However, in the long run, the economy may adjust, and the impact may vary based on various factors such as fiscal or monetary policies, which could potentially lead to expansion or recovery.
Please note that it's always a good idea to check your textbook or consult with a professor to ensure the accuracy of your answers, as different textbooks or courses may have different definitions or approaches to these concepts.