1. If the price level and the level of real GDP both increase, would it be more likely that the aggregate supply curve or the aggregate demand curve shifted? Would this shift represent an increase or a decrease (Note the increase in PRICE LEVEL, not an outside force)?
2. If the price of Pepsi increases, U.S. consumers can easily substitute to another brand of cola in the same stores. If the price level of all U.S. goods increases, to what type of goods would U.S. consumers have to substitute in order to avoid the higher prices? What would this do to the quantity demanded of all U.S. goods?
3. What would happen to the aggregate supply curve if worker productivity increased as a result of increased training and education?
4. Which of the following could lead to inflation?
a. An increase in aggregate supply
b. An increase in aggregate demand
c. A decrease in aggregate supply
d. A decrease in aggregate demand
5. If the price level rises and the money wage rate stays the same, what effect will this have upon labor demanded and production? .
6. Explain the effect a rise in price levels would have upon the demand for money and nominal interest rates.
7. Given the same scenario as #6, what will the effect be on real GDP (Explain)?
8. Refer to Figure 19.7, pg. 522. Explain why equilibrium cannot be achieved at point ‘A’.
9. What are the 2 chief causes of Cost-Push inflation?
10. Explain in detail why the Great Depression was so bad as compared to the Great Recession of 2008-2009 .
11. By 2012 the federal government spent close to $1 trillion ($1,000,000,000,000 – that’s really a lot) more than its income (a $1 trillion deficit). Its total debt has increased upwards of $18 trillion.
a. What positive effects do you think this borrowed money could have on the US’s economy (be very specific)?
b. What negative effects do you think this borrowed money could have on the US’s economy (be very specific)?
c. Will all of this debt have an effect on you as a student? as a 55 year old worker?
12. It appears that the US’s net exports have been negative for decades.
a. Explain the potential positive effects this might have on the US consumer.
b. Explain the potential negative effects this could have on US producers.
13. US consumers often purchase goods manufactured in foreign countries.
a. Write 2 reasons why you think the US consumer would purchase a foreign made product over the US made a product.
b. Assume the government decides to pass a law which forbids the purchase of any foreign goods. All goods purchased must be made in the US by US-operated companies. Explain what you think would be the reaction from 1) US consumers 2) US businesses and 3) the US labor force.
14. Would you rather open your new business before a major incident (say 9/11) or after a major incident? Explain your reasoning.
