Chapter 20: Aggregate Demand and Aggregate Supply

Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If the price of oil rises, at which point is the economy most likely to end up in the short run?

D

Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up in the short run?

D

Refer to Figure 33-10. If the economy starts at point A, a short-run fall in output would be consistent with a movement to point

D

An increase in labor productivity shifts the

SRAS curve rightward.

A change in labor productivity shifts the __________ curve and a change in the exchange rate shifts the __________ curve.

SRAS; AD

Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to

Z in the long run.

Refer to Exhibit 8-3. A shift in aggregate demand from AD2 to AD1 could have been the result of

businesses become more pessimistic about future sales.

A rise in wage rates

causes the SRAS curve to shift leftward.

A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.

durables; right

When the dollar depreciates, U.S.

exports increase, while imports decrease.

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

a decrease in the price level but does not change real GDP.

Refer to Exhibit 8-4. A movement from point A to point B on SRAS1 could have been the result of

a decrease in the price level.

When interest rates fall

firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

aggregate demand left.

Other things the same, when the government spends more, the initial effect is that

aggregate demand shifts right.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right.

In 1986, OPEC countries increased their production of oil. This caused

aggregate supply to shift right.

A business firm's profitability is based in part on the

all of the above

Refer to Exhibit 8-4. A shift in short-run aggregate supply from SRAS2 to SRAS1 could have been the result of

an increase in wage rates.

Keynes believed that economies experiencing high unemployment should adopt policies to

increase aggregate demand.

Business optimism about future sales tends to __________ investment expenditures, shifting the AD curve to the __________.

increase; right

When taxes decrease, consumption

increases as shown by a shift of the aggregate demand curve to the right.

Real GDP

measures economic activity and income

A change in the quantity demanded of Real GDP is graphically represented as a

movement from one point on the AD curve to another point on the same curve.

Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

moves to D.

The aggregate-demand curve shows the

quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

A depreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.

raise; right

The model of aggregate demand and aggregate supply explains the relationship between

real GDP and the price level.

An aggregate demand (AD) curve shows the

real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.

A short-run aggregate supply curve shows the

real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus

A decrease in the price of a nonlabor input such as machinery

shifts the SRAS curve to the right.

When the government lowers income taxes, consumption is ______________, causing a __________ the AD curve.

stimulated; rightward shift of

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

the dollar depreciates.

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds,

the dollar would depreciate which would cause aggregate demand to shift right

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging removed. In the short run

the price level will fall, and real GDP might rise, fall, or stay the same.

Aggregate demand includes

the quantity of goods and services households, firms, the government, and customer abroad want to buy.

When production costs rise,

the short-run aggregate supply curve shifts to the left.

Other things the same , if the U.S. price level rises, then

the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate rises.

Other things the same, the aggregate quantity of goods demanded decreases if

All of the above are correct.

The long-run aggregate supply curve

All of the above are correct.

During the 2008-2009 recession real GDP fell by about

4%

Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point B. If businesses become pessimistic about future sales, at which point is the economy most likely to end up in the short run?

A

Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If businesses become more optimistic about future sales, at which point is the economy most likely to end up in the short run?

B

Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If foreign real national income rises, at which point is the economy most likely to end up in the short run?

B

Other things the same, continued increases in the money supply lead to

continued increases in the price level but not continued increases in real GDP.

Tax cuts shift aggregate demand

right as do increases in government spending.

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

rise; right

Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves

to C in the long run.

The aggregate supply curve is

vertical in the long run and slopes upward in the short run.

The saying "Money is a veil." means that

while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them.