chapter 33 group b

AD/AS

1. Name two macroeconomic variables that decline when the economy goes into a recession and explain why they decline. Real GDP and investment spending decline during a recession. Real GDP declines because the value of goods and services produced declines, as well as total income. Investment spending declines because people have less money to invest.
2. Name one variable that rises during a recession and explain why. Unemployment rises during a recession because the economy is suffering, so there are fewer jobs available because companies have less money to spend on employees.
3. Name three reasons why the AD curve is downward sloping. The AD curve is downward sloping because of consumption (the wealth effect), investment (the interest-rate effect), and net exports (the exchange-rate effect). An increase in the price level reduces the real value of money, in turn reducing wealth, consumer spending, and the quantity of goods and services demanded. A higher price level raises the interest rate, reducing investment spending and the quality of goods and services demanded. When the U.S. price level rises and causes U.S. interest rates to rise, the real value of the dollar increases, and this appreciation reduces U.S. net exports and the quantity of goods and services demanded.
4. Explain what might shift an AD curve to the left. Graph this shift and explain in your post what happens to output and the price level? Use the free whiteboard by GE calledImagination Cubed to draw your graph. When finished, link your graph to your blog. To do this, copy and paste the web address into your blog posting for this assignment. An AD curve might be shifted to the left due to an event that makes consumers spend less at a given price level, an event that makes firms invest less at a given price level, a decrease in government purchases on goods and services, or an event that reduces spending on net exports at a given price level. Price remains constant and output decreases when the AD curve shifts to the left. http://www.dabbleboard.com/draw?b=Guest730583&i=3&c=39560df2b6750e516b090c14742634abaf0f194e