Chapter 12

Which of the following are sources of productivity?

- Better trained workforce - Improved production technology - Improved forms of business enterprises - Better educated workforce

Select all of the following factors which can cause net exports to change:

- Changes in exchange rates - Changes in national income abroad - Changes in price level

Which of the following are determinants of aggregate supply?

- Changes in legal-institutional environments - Changes in input prices - Changes in productivity

Which of the following are the four components or determinants of aggregate demand?

- Consumer spending - Investment spending - Net export spending - Government spending

An increase in the price level results in which of the following effects?

- Decrease in the level of consumption - Decrease in investments

Which of the following influence expected returns on investment projects?

- Expectations about future business conditions - Degree of excess capacity - Technology - Business taxes

Select all the following choices that are considered to be part of determinants of aggregate supply if they change:

- Government regulations - Business taxes and subsidies - Prices of imported resources

Select all the choices that explain what happens with rising price levels.

- Real balances drop. - People demand less output. - Purchasing power drops.

Investment spending refers to purchases of which of the following?

capital goods

The determinants of aggregate supply are variables that

cause the aggregate supply curve to shift

A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation.

cost-push

Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?

short-run curve

A leftward shift in the aggregate _____ curve leads to cost-push inflation.

supply

The two changes of the legal-institutional environment that will shift the aggregate supply curve are:

taxes and government regulations

The intersection of the aggregate demand and aggregate supply curves determines...

the equilibrium price level and equilibrium real GDP

A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to...

a decline in firms' expected returns

The wealth effect is reflected by:

a rightward shift of the aggregate demand curve

A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.

a shift of

Which of the following will increase per-unit costs and reduce short-run aggregate supply?

higher business taxes

A rise in consumer wealth will ______ consumer spending.

increase

An increase in consumer wealth prompts consumers to decrease savings and _____ spending

increase

Investment spending and aggregate demand will _____ when excess capacity dwindles

increase

Investment spending and aggregate demand will _____ when excess capacity dwindles.

increase

Higher expected returns on investment will...

increase the demand for capital and shift the aggregate demand curve to the right

A higher business tax will ______ per-unit costs and ______ short-run aggregate supply.

increase; decrease

If firms are optimistic about the business outlook, investment will ______ and the investment demand curve shifts _____.

increase; rightward

The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ...

increases money demand which increases interest rates and decreases the amount of real GDP

A decrease in the money supply is likely to cause a(n) ______ in interest rates, and subsequent ______ in investments and aggregate demand.

increases; decreases

A decrease in the price of an imported resource ______ US aggregate supply, while an increase in the price of an imported resource ______ US aggregate supply.

increases; decreases

If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.

increases; right

Wages and salaries for workers in a union are usually ______ because wages are set by a collectively bargained agreement that typically prohibits wage cuts until its expiration.

inflexible downward

What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply?

input prices

In the immediate short run...

input prices and output prices are fixed

In the short run:

input prices are fixed and output prices can vary

When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.

interest-rate

Investment spending depends on the real _____ rate and the expected return from _____.

interest; investment

The equilibrium price level and equilibrium output is determined by the:

intersection of the aggregate demand curve and the aggregate supply curve

A decline in investment spending at each price level will shift the aggregate demand curve to the:

left

If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the:

left

The aggregate demand curve will shift to the _____ when US net exports decline

left

Wage increases shift the aggregate supply curve to the:

left

An increase in real interest rates will ______ investment spending and ______ aggregate demand.

lower; reduce

Assuming constant price levels, an initial drop in aggregate demand (AD) results in ______ being at full strength.

the multiplier

The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies...

typically change price levels and output levels simultaneously

An unexpected increase in asset values that results in an increase in consumer spending is called the _____ effect.

wealth

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.

wealth

The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer...

wealth

If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates.

national income abroad; exchange

Aggregate supply is represented as a schedule or curve showing the relationship between a nation's _____ level (index) and the amount of real domestic output that firms in the economy produce.

price

Total output divided by total inputs is the formula for

productivity

_____ is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.

productivity

Productivity is the measure of the relationship between a nation's level of...

real output and the amount of resources used to produce that output

The _____ is when a higher price level reduces the purchasing power of the public's accumulated savings balances

real-balances effect

What is one result of a decrease in aggregate demand?

recession

A higher price level _____ the real value or purchasing power of the public's accumulated savings balances.

reduces

An input price is a(n) ______ price while an output price makes up the price level

resource

If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the:

right

The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the:

right

Aggregate demand will rise if consumers expect prices to _____ in the future.

rise

Changes in consumer spending, investment, government spending and net export spending will:

shift the aggregate demand curve

A decline in investment spending at each price level will...

shift the aggregate demand curve to the left

A decrease in borrowing by consumers for consumption spending will...

shift the aggregate demand curve to the left

Which of the following explain the reasons for the downward slope of the aggregate demand curve? Multiple choice question.

A higher price level decreases the purchasing power of the publics' accumulated savings balances.

How is the real-balances effect defined?

A higher price level reduces the purchasing power of the public's accumulated savings balances.

True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded.

False

True or false: The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.

False

_____ spending will fall if firms' outlook on the economy is pessimistic.

Investment/ Capital

Which of the following is a reason that a company's input prices can be inflexible for a period of several years?

Large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract.

What is the result of an increase in the money supply?

Lower interest rate, increased investment and increased aggregate demand

What will a decrease in US net exports do?

Shift the aggregate demand curve leftward

What happened to the U.S. economy in the 1990s?

Unemployment fell to 4%. GDP grew by 4% annually.

Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?

The level of consumption increases, investment increases, and net exports increase.

True or false: Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.

True

True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.

True

What will be the result if the largest foreign providers of steel increase the prices they charge U.S. buyers?

U.S. aggregate supply will decrease.

When does the long run begin?

When the short-run ends

A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called

aggregate demand

If consumers expect inflation in the near future, consumers will want to buy more products now and...

aggregate demand will increase

What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?

aggregate supply

A wage decrease shifts the:

aggregate supply curve to the right.

A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level.

an increase

When firms realize that their excess capacity is shrinking, investment spending ...

and aggregate demand (AD) will increase.

Consumer wealth is defined as the total value of:

assets minus the total value of liabilities

An increase in investment spending at each price level will...

shift the aggregate demand curve to the right

When interest rates are higher, businesses and consumers will:

decrease investment spending and interest-sensitive consumption spending.

If the government subsidizes the development of alternative energy it will...

decrease the per-unit production costs and shift the aggregate supply curve to the right

A business subsidy will _____ production costs and ______ short run aggregate supply.

decrease; increase

An increase in real interest rates will ______ investment spending and ______ borrowing costs.

decrease; increase

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.

decreases; left

A decline in the price level is called:

deflation

A decrease in investment spending at each price level will shift the aggregate...

demand curve to the left

An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.

demand-pull

The interest rate effect causes the aggregate demand to be

downward sloping

Cyclical unemployment and recession often arise from in aggregate demand

drops

New and improved technologies will increase investment spending by...

enhancing expected return on investment

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.

fall; rise

In the long-run, output prices and input prices are:

flexible

When the US price level rises relative to foreign price levels ....

foreigners buy fewer US goods and Americans buy more foreign goods

Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at

full strength

Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being _____ than potential GDP.

higher