ECO-111 Quiz 10 TESU

During recessions, declines in investment account for about _______ of the decline in real GDP.

2/3

The classical dichotomy and monetary neutrality are represented graphically by

a vertical long-run aggregate-supply curve

The multiplier effect is exemplified by the multiplied impact on _______ of a given increase in _________.

aggregate demand; government purchases

The aggregate-demand curve shows that a decrease in the price level _________ the _________ value of goods and services demanded in the economy.

increases; real

The wealth effect stems from the idea that a higher price level ___________ the real value of _________.

decreases; households' money holdings

Other things the same, if the price level rises, people increase __________ bond purchases, so the dollar _________.

domestic; depreciates

The term crowding-out effect refers to the reduction in aggregate demand that results when a __________ causes the interest rate to _________.

fiscal expansion; increase.

The decline in ________ accounts for about two-thirds of the decline in output during a recession.

investment spending

Other things the same, when the price level rises more than expected, some firms will have ________ than desired prices, which __________ their sales.

lower; increase

Which of the following is most commonly used to monitor short-run changes in economic activity?

real GDP

The classical dichotomy refers to the separation of __________ and ________.

real values; nominal variables

When the price level falls, the quantity of consumption goods demanded ____________ and the quantity of net exports demanded ____________.

rises; rises

An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level ________, shifting aggregate __________.

rises; supply left

Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should _________ government bonds, which will _________ the money supply.

sell; reduce

Liquidity preference theory is most relevant to the _______ run and supposes that the _______ adjusts to bring money supply and money demand into balance.

short; interest rate

The most important automatic stabilizer is

tax system

An example of an automatic stabilizer is

unemployment benefits

Keynes argued that aggregate demand is

unstable, because waves of pessimism and optimism create fluctuations in aggregate demand

According to liquidity preference theory, the money-supply curve is

vertical

For the U.S. economy, the ______ effect is the most important reason for the downward slope of the aggregate-demand curve.

wealth