Questions from General Economics

Q: Explain the three reasons the aggregate-demand curve slopes downward.

Explain the three reasons the aggregate-demand curve slopes downward. Give an example of an event that would shift the aggregate-demand curve. Which way would this event shift the curve?

Q: Show a consumer’s budget constraint and indifference curves for wine and cheese

Show a consumer’s budget constraint and indifference curves for wine and cheese. Show the optimal consumption choice. If the price of wine is $3 per glass and the price of cheese is $6 per pound, what...

Q: Explain why the long-run aggregate-supply curve is vertical

Explain why the long-run aggregate-supply curve is vertical. Explain three theories for why the short-run aggregate-supply curve slopes upward. What variables shift both the long-run and short-run agg...

Q: Suppose that the election of a popular presidential candidate suddenly increases people’s

Suppose that the election of a popular presidential candidate suddenly increases people’s confidence in the future. Use the model of aggregate demand and aggregate supply to analyze the effect on the...

Q: List and discuss three key facts about economic fluctuations.

List and discuss three key facts about economic fluctuations.

Q: Consider two policies—a tax cut that will last for only

Consider two policies—a tax cut that will last for only one year and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the g...

Q: The economy is in a recession with high unemployment and low output

The economy is in a recession with high unemployment and low output. a. Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate-dema...

Q: In the early 1980s, new legislation allowed banks to pay interest

In the early 1980s, new legislation allowed banks to pay interest on checking deposits, which they could not do previously. a. If we define money to include checking deposits, what effect did this leg...

Q: Suppose economists observe that an increase in government spending of $10 

Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a. If these economists ignore the possibility of crowdi...

Q: Suppose the government reduces taxes by $20 billion, that there

Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate de...