cNaiki sells 10,000 pair of shoes each year. If the total cost of placing an order is 6.5 and it costs 13per year to carry one pair in inventory, use the EOQ formula to calculate the optimal order size.Naiki sells 10,000 pair of shoes each year. If the total cost of placing an order is 6.5 and it costs 13per year to carry one pair in inventory, use the EOQ formula to calculate the optimal order size.Choice Identify the choice that best completes the statement or answers the question 1 When we say that economic fluctuations are “irregular.
Macro Tut 7: Aggregate Demand and Aggregate Supply Multiple Choice: Identify the choice that best completes the statement or answers the question When we say that economic fluctuations are “irregular and unpredictable,” we mean that a the relationship between output and unemployment is erratic and difficult to characterize b when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising c recessions not occur at regular intervals d All of the above are correct Real GDP a is the current dollar value of all goods produced by the citizens of an economy within a given time b measures economic activity and income c is used primarily to measure long-run changes rather than short-run fluctuations d All of the above are correct As recessions begin, production a and unemployment both rise b rises and unemployment falls c falls and unemployment rises d and unemployment both fall 4 The classical model is appropriate for analysis of the economy in the a long run, since evidence indicates that money is not neutral in the long run b long run, since real and nominal variables are essentially determined separately in the long run c short run, provided money is not neutral d short run, provided real and nominal variables are highly intertwined Most economists believe that money neutrality holds a in the short run but not the long run b in the long run but not the short run c in both the short run and the long run d in neither the short run nor the long run The aggregate demand and aggregate supply graph has a the price level on the horizontal axis The price level can be measured by the GDP deflator b the price level on the horizontal axis The price level can be measured by real GDP c the price level on the vertical axis The price level can be measured by the GDP deflator d the price level on the vertical axis The price level can be measured by GDP 7 The model of aggregate demand and aggregate supply explains the relationship between a the price and quantity of a particular good b unemployment and output c wages and employment d real GDP and the price level The curve that shows the quantity of goods and services that firms produce and sell a as it relates to the quantity of goods and services that buyers want to buy is called the aggregatedemand curve b as it relates to the quantity of goods and services that buyers want to buy is called the aggregatesupply curve c as it relates to the overall price level is called the aggregate-demand curve d as it relates to the overall price level is called the aggregate-supply curve When the price level falls the quantity of a consumption goods demanded rises, while the quantity of net exports demanded falls b consumption goods demanded and the quantity of net exports demanded both rise c consumption goods demanded and the quantity of net exports demanded both fall d consumption goods demanded falls, while the quantity of net exports demand rises 10 The effect of an increase in the price level on the aggregate-demand curve is represented by a a shift to the right of the aggregate-demand curve b shift to the left of the aggregate-demand curve c movement to the left along a given aggregate-demand curve d movement to the right along a given aggregate-demand curve 11 Other things the same, an increase in the price level makes consumers feel a less wealthy, so the quantity of goods and services demanded falls b less wealthy, so the quantity of goods and services demanded rises c more wealthy, so the quantity of goods and services demanded rises d more wealthy, so the quantity of goods and services demanded falls 12 Other things the same, an increase in the price level induces people to hold a less money, so they lend less, and the interest rate rises b less money, so they lend more, and the interest rate falls c more money, so they lend more, and the interest rate falls d more money, so they lend less, and the interest rate rises 13 Other things the same, when the price level falls, interest rates a rise, which means consumers will want to spend more on homebuilding b rise, which means consumers will want to spend less on homebuilding c fall, which means consumers will want to spend more on homebuilding d fall, which means consumers will want to spend less on homebuilding 14 Other things the same, as the price level falls, which of the following increases? a lending and investment spending b lending, but not investment spending c investment spending, but not lending d neither investment spending nor lending 15 Other things the same, as the price level rises, the real value of a dollar a rises, and interest rates rise b rises, and interest rates fall c falls, and interest rates rise d falls, and interest rates fall 16 Other things the same, the aggregate quantity of goods demanded in the U.S increases if a real wealth falls b the interest rate rises c the dollar depreciates d None of the above is correct 17 Suppose a fall in stock prices makes people feel poorer The decrease in wealth would induce people to desire a decreased consumption, shown as a movement to the left along a given aggregate-demand curve b increase consumption, shown as a movement to the right along a given aggregate-demand curve c decreased consumption, shifting the aggregate-demand curve to the left d increased consumption, shifting the aggregate-demand curve to the right 18 When taxes decrease, consumption a decreases as shown by a movement to the left along a given aggregate-demand curve b decreases as shown by a shift of the aggregate demand curve to the left c increases as shown by a movement to the right along a given aggregate-demand curve d increases as shown by a shift of the aggregate demand curve to the right 19 Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a aggregate demand right b aggregate demand left c aggregate supply right d aggregate supply left 20 The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit Which of these policies shift aggregate demand to the right? a both the money supply increase and the investment tax credit b the money supply increase but not the investment tax credit c the investment tax credit but not the money supply increase d neither the investment tax credit nor the money supply increase EXERCISES AND PROBLEMS: Excise 1 Recessions not occur at ………regular ………intervals As recessions begin, production ……falls…… and…unemployment ………… rises The model of Aggregate Demand and Aggregate Supply explains the relationship between the price level and …………real GDP …………………………… A fall in stock prices induces people to …decrease………… consumption, shifting the aggregate-demand curve to the …left………… Other things the same, the aggregate quantity of goods demanded in the U.S increases if the dollar ………Depreciates…………………… Other things the same, an increase in the price level induces people to hold …more ………… money, so they lend ……less………., and the interest rate …rises……… Most economists believe that ……money neutrality……… holds in the long run but not the short run Exercise 2: Find the underlined parts that are incorrect in these statements and correct them: Technological progress shifts the short-run AS and the long-run AS curve to the left A B C Dright Increased pessimism about the future leads to rising prices and falling unemployment in the A optimism B C short run D 10 A decrease in the money demand causes the interest rate to rise so that investment falls A Bmoney supply C D 11 Stagflation results from continued decreases in aggregate demand A B C D aggregate supply 12 A change in the money supply changes only nominal variables in the short run A B C Problem 1: D long run Draw an AD-AS graph showing long-run macroeconomic equilibrium Label AD, SRAS, LRAS, potential output, equilibrium aggregate price level, and output PRICE LEVEL Long run aggregate supply Short run aggregate supply equilibri um aggrega te price level A POTENTIAL OUTPUT GGREGATE DEMAND Real output Problem 2: For each of the following, describe the effect on the AD, SRAS, and LRAS curves, identify whether the effect causes a shift of or a movement along the curve, and identify the direction of the shift/movement a An increase in the money supply causes interest rates to fall The AD curve shifts to the right and there is movement upward along the SRAS curve There will be no change in the LRAS curve b The price of commodities increases by 10% this year This causes the SRAS curve to shift to the left There will be a movement along the AD curve There will be no change in LRAS c The price of oil falls SRAS shifts to the right and results in a downward movement along the AD curve There is no change in the LRAS d Labor unions successfully negotiate an increase in nominal wages for their workers SRAS shifts to the left e The supply of unsold houses in an economy increases by 20% When the inventory of unsold houses increases in an economy, this implies that the level of investment is high and there is therefore less incentive for firms to invest in this economy As investment spending falls, AD shifts to the left f There is an increase in labor productivity due to increases in human capital SRAS shifts the the right, but also causes LRAS to shift to the right because the economy can now produce a higher potential output level g The government increases spending in order to finance a war AD shifts to the right Problem 3: Consider an economy in long-run equilibrium Draw a graph of the AD-AS model to show the effect of each of the following (ceteris paribus) changes a The economy’s central bank decreases the money supply.=)) IR INCREASES , INVESTMENT SPENDING INCREASE (negative demand shock=) demand decrease ) PRICE LEVEL LRAS P2 SRAS P1 AD2 Y2 Y1 AD1 Real gdp b Productivity decreases in the economy For both a and b, answer the following sub-questions: i What happens to the aggregate output and price level? Y↓, PL↑ ii Does this economy face a short-run recessionary gap or an inflationary gap? recessionary iii What active stabilization policy can offset this particular shock? Expansionary monetary or fiscal policy i What would happen in the long run to the aggregate price and output levels without an active stabilization policy? ? Nominal wages become flexible and fall, SRAS shifts to the right, output ↑ to potential output