Aggregate Demand/ Aggregate Supply

An increase in government purchases, combined with a decrease in investment, would have effect on aggregate demand?

AD could either increase or decrease, depending on which change was of greater magnitude.

If exports and imports both decrease, but exports decrease more than imports.

AD would decrease

In the AD/AS model, the vertical axis is labeled:

Aggregate price level

Aggregate demand is the sum of:

C+I+G+(X-M)

If the price level rises, what will happen to the quantity of RGP produced along the long-run aggregate supply curve:

Nothing will happen to it.

the long-run aggregate supply curve is:

Perfectly vertical

The proposition that "supply creates its own demand" is called

Say's law

investment (I) includes

the amount spent on new factories and machinery

If private consumption in the United States were 67 percent of GDP, investment were 16 percent, government purchases were 13 percent, exports were 12 percent, and imports were 8 percent, net exports would be equal to ____ percent of GDP

4%

If exports increased and imports decreased:

AD would increase

____ will most likely increase the economy's long-run aggregate supply

Advances in technology

Say's law was emphasized by

Classical economists

The _____ is vertical at full employment

Long-run aggregate supply line

The short-run aggregate supply curve slopes up because:

Profits increase at higher price levels

If Europe experiences a large increase in income, what will happen in the United States?

The AD curve shifts to the right

Which is the following best illustrates the wealth effect?

The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

Aggregate supply is:

The real GDP that firms will produce a varying price levels

Which of the following do not explain the downward slope of the aggregate demand curve?

The substitution effect

A recession could result from:

a decrease in aggregate demand

Which of the following could be expected to shift the short-run aggregate supply curve upward?

a rise in the price of oil a natural disaster wage increases without increases in labor productivity

Which of the following will cause consumption and, as a result, aggregate demand to decrease?

a tax increase a fall in consumer confidence reduced stock market wealth rising levels of consumer debt

What is the typical response of firms to an increase in the price of what they sell, for given input prices?

an increase in output an increase in hiring factors of production an increase in the profit level of firms an increase in employment in the industry

The largest component of aggregate demand is:

consumption

An economic bust or severe downturn in the Japanese economy will likely result in a(n)

decrease in U.S. exports and U.S. aggregate demand.

In the short run, a decrease in the price level:

decreases RGDP supplied

According to the real wealth effect, if you are living in a period of falling price levels on a fixed income: (that is not indexed), the cost of the goods and services you buy___ and your real income__.

decreases;increases

A massive increase in interstate highway construction will affect aggregate demand through which sector? will this change increase or decrease aggregate demand?

government purchases, increase

Empirical evidence suggests that consumption___ with any____

increases, increase in income

As the price level decreases, real wealth___, purchasing power ___, and the quantity of RGDP demanded___.

increases, increases, increases

The aggregate demand curve:

is negatively sloped demonstrates an inverse relationship between the price level and real gross domestic shows how real gross domestic product demanded changes with the changes in the price level

A reduction in personal income taxes, other things being equal will:

leave consumers with more disposable income increase aggregate demand

The aggregate demand curve displays

real GDP demanded at different price levels

When a recessionary gap occurs:

real output is less than the natural level of output, and unemployment exceeds its natural rate.

Economic growth is shown as a:

shifts to the right in the long0tun aggregate supply curve.

An increase in input prices causes:

the short-run aggregate supply curve to shirt inward, which means the quantity supplied at any price level declines

In a stagflation situation:

unemployment increases and the price level increases.

Starting from long-run equilibrium, an increase in aggregate demand will cause:

an inflationary gap in the short run