Macroeconomics Dr. Mo’een Rajab

Questions for Revision (5) on chapter (9) 10/5/2011

Section I: Answer the following questions: 1.Explain how we can derive the Aggregate Demand curve. To derive the aggregate demand curve, we examine what happens to aggregate output (income) (Y) when the price level (P) changes, assuming no changes in government spending (G), net taxes (T), or the monetary policy variable (M s ).

2. Explain the relationship aggregate output (Income) and the price level. Use a graph. The relationship between these variables is negative according to the following graph.

Section (II) mention whether these sentences true or false: 1. Aggregate demand is the total supply for goods and services in the economy. 1. Aggregate demand is the total supply for goods and services in the economy. (×) 2. The aggregate demand (AD) curve is a curve that shows the negative relationship between aggregate output (income) and the price level. (√)

3. The Aggregate demand curve (AD) is not a market demand curve. It is a more complex concept. 3. The Aggregate demand curve (AD) is not a market demand curve. It is a more complex concept. (√) 4. We can use the ceteris paribus assumption to draw an AD curve. 4. We can use the ceteris paribus assumption to draw an AD curve. (×)

5- A higher price level causes the demand for money to rise. (√) 6- All points along the AD curve, both the goods market and the money market are in equilibrium. (√)

Questions for Revision (5) on chapter (10)

Section I: Answer the following questions: 1.Define the unemployment rate. The unemployment rate is the ratio of the number of people unemployed to the total number of people in the labor force.

2- Define the Cyclical unemployment It is the increase in unemployment that occurs during recessions and depressions.

3- Compare between frictional unemployment $ Structural Unemployment. Frictional unemployment is the portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems.Frictional unemployment is the portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems. Structural unemployment is the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.Structural unemployment is the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.

4- What are the effects of rising and falling wage rates according to classical economists. According to classical economists, the quantity of labor demanded and supplied are brought into equilibrium by rising and falling wage rates. There should be no persistent unemployment above the frictional and structural amount.

Section (II) mention whether these sentences true or false: 1.The unemployment rate is the ratio of the number of people employed to the total number of people in the labor force. 1.The unemployment rate is the ratio of the number of people employed to the total number of people in the labor force. (×) 2.Classical economists believe that the labor market always clears. (√)

3- If labor demand decreases, the equilibrium wage will rise. 3- If labor demand decreases, the equilibrium wage will rise. (×) The unemployment rate is necessarily an accurate indicator of whether the labor market is working properly. 4- The unemployment rate is necessarily an accurate indicator of whether the labor market is working properly. (×)