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8 Cards in this Set

  • Front
  • Back
Why is the AD curve negatively sloped?
at higher P, demand for nominal money is high, people try to sell bonds, price of bonds fall, interest rates rise, spending and output fall.
Slope of AD depends on
d2 (interest sensitivity on money demand), b2, (interest sensitivity on investment), c1 (MPC), b1 (MPI)
What causes shifts of AD to the right
increase in G, increase in Co, increase in Bo, increase in M, increase in T. P will cause movements, not shifts
when unemployment is greeater than natural? When unemployment is less than natural?
greater: there are deflationary pressures.
less: inflationary
As unemployment rises, what happens to the price level?
price level falls
Why is the AS curve upward sloping?
higher output requires more labor, unemployment falls, nominal wages increases, price levels increase.
In the medium run, what is the effect of output on P
If price levels are higher than expected
wage setters will increase expectations, AS curve shifts upward, the higher price level causes nominal wages increase, higher price level.