econ 20

Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the ______

sticky-wage theory of the short-run aggregate-supply curve

The natural level of output is the amount of real GDP produced _______

when the economy is at the natural rate of unemployment

Suppose the economy is initially in long-run equilibrium. Then suppose there is a sudden rise in the price of crude oil due to a military conflict in the Middle East. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Prices rise and output falls

Which of the following events shifts the short-run aggregate-supply curve to the right?

. A drop in oil prices

uppose the economy is initially in long-run equilibrium. Then suppose there is a sudden rise in the price of crude oil due to a military conflict in the Middle East. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

. Output and the price level are unchanged from their initial values

According to the wealth effect, aggregate demand slopes downward because _____

. lower prices increase the value of money holdings and consumer spending increases

Stagflation occurs when the economy experiences _______.

. rising prices and falling output

Which of the following would not cause a shift in the long-run aggregate-supply curve?

A change in price expectations

which of the following statements about economic fluctuations is true?

A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.

Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

Prices fall and output is unchanged from its initial value.

Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in investment spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Prices fall and output falls.

Which of the following is not a reason why the aggregate-demand curve slopes downward?

The classical effect

According to the interest-rate effect, aggregate demand slopes downward because ____

lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the ____

misperceptions theory of the short-run aggregate-supply curve

Which of the following statements is true regarding the long-run aggregate-supply curve? The long-run aggregate-supply curve ____

is vertical because an equal change in all prices and wages leaves output unaffected

graph: Suppose the economy is operating in a recession such as point B in the graph. If policymakers allow the economy to adjust to the long-run natural level on its own, ____

people will reduce their price expectations and the short-run aggregate supply will shift right

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause _______

prices to rise and output to remain unchanged

Policymakers are said to "accommodate" an adverse supply shock if they _____

respond to the adverse supply shock by increasing aggregate demand, which further raises prices

In the model of aggregate demand and aggregate supply, the initial impact of a decrease in consumer optimism is to ______

shift aggregate demand to the left

graph: Suppose the economy is operating in a recession such as point B in the graph. If policymakers wished to move output to its long-run natural level, they should attempt to _____

shift aggregate demand to the right