Ch. 7 Questions:

1. Explain Say's Law in my own words.

2. What is aggregate demand (AD) and why is it downward sloping?

3. What is Long Run Aggregate Supply (LRAS) and why is it vertical?

4. Suppose prices are currently below P* in Econville. How would the Classical Model predict the economy would correct itself and restore equilibrium in the long run?

Ch. 8 Questions:

1. Explain sticky prices and sticky wages in my own words.

2. List 3 reasons the Short Run Aggregate Supply (SRAS) curve would shift to the right.

3. Define the Marginal Propensity to Consume (MPC) in your own words. Why is it assumed to be between 0 and 1?

4. Suppose the federal government announces a plan to increase taxes by $80,000. If the MPC=0.8, what is the change in real GDP (Y)?