1. Aggregate Demand curves slope down. Explain in a sentence what that means (what happens whenPrice Level falls, all else constant?) and give one reason for the negative slope (inverse relation).2. Assume an economy operates in the intermediate range of its aggregate supply curve. State thedirection of shift for the aggregate demand curve or aggregate supply curve for each of the followingchanges in conditions. What is the effect on the price level? On real GDP? On employment?a. The price of crude oil rises significantly (300%. say) raising the price of energy generally.b. Spending on national defense doubles.c. Investment spending falls as firms expect slower sales growth.d. An improvement in technology raises labor productivity.e. The United States raises exports of new passenger aircraft to China.3. Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in aggregatedemand in each range.

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Answered: 1. Aggregate Demand curves slope down.…

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 5PA

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Question

1. Aggregate Demand curves slope down. Explain in a sentence what that means (what happens when
Price Level falls, all else constant?) and give one reason for the negative slope (inverse relation).
2. Assume an economy operates in the intermediate range of its aggregate supply curve. State the
direction of shift for the aggregate demand curve or aggregate supply curve for each of the following
changes in conditions. What is the effect on the price level? On real GDP? On employment?
a. The price of crude oil rises significantly (300%. say) raising the price of energy generally.
b. Spending on national defense doubles.
c. Investment spending falls as firms expect slower sales growth.
d. An improvement in technology raises labor productivity.
e. The United States raises exports of new passenger aircraft to China.
3. Identify the three ranges of the aggregate supply curve. Explain the impact of an increase in aggregate
demand in each range.

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Assume an ecomy operates in the intermediate range of its aggregate supply curve. State the direction of shif for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment?

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