1. Suppose the supply of money increases, causing output to exceed full employment. Prices will ______ and real GDP will ______ in the short run, and prices will ______ and real GDP will in the long run.
2. Consider a decrease in the supply of money that causes output to fall short of full employment. Prices will ______ and real GDP will ______ in the short run, and prices will ______ and real GDP will in the long run.
3. In a recession, real GDP is potential GDP. This implies that unemployment is ______, driving wages ______. This results in a(n) ______ shift of the short-run aggregate supply curve.
4. A negative supply shock temporarily lowers output below full employment and raises prices. After the negative supply shock, real GDP is potential GDP ______. This implies that unemployment is ______, driving wages. This results in a(n) ______ shift of the short-run aggregate supply curve.
5. Lack of Credit and Aggregate Demand and Supply. In the 2008 recession, both firms and households had limited access to credit. Explain how this could be both a negative shock to aggregate demand and a negative shock to aggregate supply.
6. Shifts in Aggregate Demand and Cost-Push Inflation. When wages rise and the short-run aggregate supply curve shifts up, the result is cost push inflation. If the economy was initially at full employment and the aggregate demand curve was shifted to the right, explain how cost-push inflation would result as the economy adjusts back to full employment.
7. Exports and Real GDP. Are increases in exports associated with increases in real GDP? A good place to start to find out is the Web site of the Federal Reserve Bank of St. Louis (research.stlouisfed.org/fred2).