Econ Exam III
other things the same, when the government spends more, the initial effect is that
aggregate demand shifts left
in the context of the aggregate-demand curve, the interest-rate effects refers to the idea that, when the price level increases
households increases their holdings of money; in turn, interest rates increase, which reduces spending on investment goods
other things the same, if the price level rises, people
increase domestic bond purchases, so the dollar appreiates
according to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had
increased, so it would increase production
in the context of aggregate demand and aggregate supply, the wealth effects refers to the idea that, when the price level decreases, the real wealth of households
increases and as a result consumption spending increases. this effect contributes to the downward slope of the aggregate-demand curve
when taxes decrease consumption
increases as shown by a shift of the aggregate demand curve to the right
which of the following shifts aggregate demand to the left? A. the price level rises B. Interest rates fall C. the dollar depreciates for some reason other than a change in the price level D. a decrease in the price level
increases in the profitability of capital due perhaps to technological progress
the misperceptions theory of the short-run aggregate supply curve says that of the price level is higher than people expected, then some firms believe that the relative price of what they produce has
increases so they increase production
aggregate demand shifts right when the Federal Reserve
increases the money supply
when the money supply increases
interest rates fall and so aggregate demand shifts right
the position of the long-run aggregate supply curve
is determined by resource usage and technology
other things the same, an increase in the price level makes consumers feel
less wealthy, so the quantity of goods and services demanded falls
stick nominal wages can result in
lower profits for firms when the price level is lower than expected
the sticky-price theory of the short-run aggregate supply curve says that when the price level is higher that expected, some firms will have
lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied
the sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected
production is more profitable and employment rises
which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases
the dollar appreciates relative to other currencies
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 left
which of the following is correct
the long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables
the aggregate supply curve is
vertical in the long run and slopes upward in the short run
which of the following effects helps to explain the slope of the aggregate-demand curve A. the exchange-rate effect B. the wealth effect C. the interest-rate effect D. All of the above are correct
D. All of the above are correct
which of the following is correct 1. shhort run fluctuations in economic activity happen only in developing countries 2. during economic contractions most firms experience rising profits 3. recessions come at irregular intervals and are easy to predict 4. when real GPD falls, the rate of unemployment generally rises
4. when real GDP falls, the rate of unemployment generally rises
which of the following shifts aggregate demand to the right? A. the federal Reserve buys bonds B. a decrease in net exports due to something other than a change in domestic prices C. The repeal of an investment tax credit
A. the federal reserve buys bonds
at the end of WWII many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in
Both the United States and Europe
other things the same, which of the following is correct A. a decrease in the price level causes the dollar to appreciate. Aggregate demand shifts right B. A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts right C. if Speculators lose confidence in the American economy, the dollar appreciates. Aggregate demand shifts right D. If speculators lose confidence in the american economy, the dollar depreciates. Aggregate demand shifts right
D. if speculators lose confidence in the american economy, the dollar depreciates. Aggregate demand shifts right
which of the following shifts aggregate demand to the left A. the price level rises B. interest rates fall C. the dollar depreciates for some reason other than a change in the price level D. stock prices fall for some reason other than a change in the price level
D. stock prices fall for some reason other than a change in the price level
which of the following are not included in the aggregate demand for goods and services A. purchases of stock and bonds B. purchases of services such as visits to the doctor C. purchases of capital goods such as equipment in the factory D. purchases by foreigners of consumer goods produced in the United States
Purchases of stock and bonds
which of the following would cause investment spending to decrease and aggregate demand to shift left?
a decrease in the money supply and the repeal of an investment tax credit
which of the following would help explain why the aggregate demand curve slopes downward
a lower price level reduces the interest rate, which encourages greater spending on investment goods
the initial impact of an increase in an investment tax credit is to shift
aggregate demand right
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, as the price level rises, real exchange rates
and interest rates rise
wages tend to be sticky
because of contracts, social norms, and notions of fairness
changes in the price level affect which components of aggregate demand
consumption, investment, and net exports
aggregate demand shifts right when the government
decreases taxes
part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level
decreases the interest rate
other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then
employment and production rise
an increase in household saving causes consumption to
fall and aggregate demand to decrease
when the price level falls
firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes
in the aggregate demand and aggregate supply model, stick wages, sticky prices, and misperceptions about relative prices
have temporary effects
classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise in the meantime the economy enjoyed higher employment and production. this is inconsistent with monetary neutrality because
monetary neutrality would mean the prices should have risen, but productino should not have changed
other things the same, an increase in the price level induces people to hold
more money, so they lend less, and the interest rate rises
the effect of an increase in the price level on the aggregate-demand curve is represented by a
movement to the left along a given aggregate-demand curve
which of the following can explain the upward slope of the short-run aggregate supply curve
nominal wages are slow to adjust to changing economic conditions
the aggregate demand and aggregate supply graph has
quantity of output on the horizontal axis. output can be measured by the real GDP
assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as
quantity of output supplied = natural rate of output + a(actual price level - expected price level)
which of the following is most commonly used to monitor short-run changes in economic activity
real GDP
most economists believe that in the short run
real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend
the aggregate quantity of goods and services demanded changes as the price level rises because
real qealth falls, interest rates rise, and the dollar appreciates
A relatively mild period of falling incomes and rising unemployment is called
recession
when we say that economic fluctuations are "irregular and unpredictable." we mean that
recessions do not occur at regular intervals
if banks and speculators in the U.S. decided to exchange U.S dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. net exports would
rise and aggregate demand would shift right
other things the same, if the price level rises, then domestic interest rates
rise, so domestic residents will want to hold rewer foreign bonds
if the price level falls, the real value of a dollar
rises, so people will want to buy more. this response helps explain the slope of the aggregate demand curve
as the price level rises, the interest rate
rises, so the supply of dollars in the market for foreign currency exchange decreases
the aggregate demand is described graphically as
sloping donward
menu costs help explain
stick-price theory
aggregate demand shifts if at a given price level
taxes fall and shifts if the money supply increases
the model of short-run economic fluctuations focuses on
the price level and real GPD
Which of the following adjust to bring aggregate supply and demand into balance
the price level and real output
the aggregate demand and aggregate supply graph has
the price level on the vertical axis. the price level can be measured by the GPD deflator
aggregate demand includes
the quantity of goods and services the government, households, firms, and costumers abroad want to buy
real and nominal variables are highly intertwined, and changes in the money supply change real GPD. Most economists would agree that this statement accurately describes
the short run, but not the long run
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 real exchange rate rises
when the Fed buys bonds
the supply of money increases and so aggregate demand shifts right