Review Questions

16.

What is Say’s law?

17.

What is Keynes’ law?

18.

Do neoclassical economists believe in Keynes’ law or Say’s law?

19.

Does Say’s law apply more accurately in the long run or the short run? What about Keynes’ law?

20.

What is on the horizontal axis of the AD/AS diagram? What is on the vertical axis?

21.

What is the economic reason why the SRAS curve slopes up?

22.

What are the components of the AD curve?

23.

What are the economic reasons why the AD curve slopes down?

24.

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

25.

Briefly explain the reason for the near-vertical shape of the SRAS curve on its far right.

26.

What is potential GDP?

27.

Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.

28.

Will the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?

29.

What is stagflation?

30.

Name some factors that could cause AD to shift, and say whether they would shift AD to the right or to the left.

31.

Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

32.

How is long-term growth illustrated in an AD/AS model?

33.

How is recession illustrated in an AD/AS model?

34.

How is cyclical unemployment illustrated in an AD/AS model?

35.

How is the natural rate of unemployment illustrated in an AD/AS model?

36.

How is pressure for inflationary price increases shown in an AD/AS model?

37.

What are some of the ways in which exports and imports can affect the AD/AS model?

38.

What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?

39.

What is the neoclassical zone of the SRAS curve? How much is the output level likely to change in the neoclassical zone?

40.

What is the intermediate zone of the SRAS curve? Will a rise in output be accompanied by a rise or a fall in the price level in this zone?