Professional Documents
Culture Documents
ADAS Instructions & Review Questions
ADAS Instructions & Review Questions
DSME 1040C
A. Review Questions
(i) Aggregate Demand
1a. Aggregate demand is the sum of the demands from private consumption
expenditure, private investment expenditure, government ________ and
________ with trading partners.
1b. The Aggregate demand curve slopes ________ as ______ of these expenditure
components are negatively related to the price level.
2. The aggregate demand curve shows the relationship between ______ and
______.
3. According to the wealth effect, when the price level falls, the ________ value of
household wealth rises, ________ increases as a result.
4. According to the interest rate effect, when the price level increases, money
________ will shift to the right as consumers need more ________ for the same
basket of goods consumption.
5. According to the interest rate effect, a higher price level ______ the interest
rate and lowers investment and ________.
7. When the price level increases, HK-made goods are ________ to foreign
buyers. Net exports ________ as a result.
8. According to the exchange rate effect, when the price level increases, the
interest rate ________, leading to currency appreciation. Net exports ______ as
a result.
9. Explain how a higher income-tax rate will affect the aggregate demand curve.
10. In Dec 2015, the Federal Reserve Board Open Market Committee raised the
target range for the federal funds rate from 1/4 to 1/2 percent. It was the first
hike in more than seven years. Explain how a higher interest rate affects the
aggregate demand curve.
15. Classical economists believe that product prices and wages are ________. On
the contrary, Keynesian economists believe that prices and wages are
________.
16. Are you willing to take a wage cut? Why or why not?
19. In the ________ run, wage is assumed to be sticky in a simple ADAS model like
ours. The adjustment from SR to LR comes from changes in the ________
market.
20a. In particular, when output is less than the full-employment level, wages (and
other input prices) will ________. The ________ curve will shift to the ________ as
a result.