ECON FINAL

the foreign purchases, interest rate, and real balances effects explain why the

AD curve is downward sloping

which of the following circumstances can we expect inflation

AS decreases AD increases

In which of the following circumstances can we confidently expect inflation

AS decreases and AD increases

assume the economy is operating at less than full employment. an expansionary monetary policy will cause interest rates to _____ which will ____ investment spending

Decrease;decrease

if the government wants to pursue an expansionary fiscal policy then a tax cut of a certain size will be more expansionary when the

Economy's MPS is small

The lending ability of commercial banks increases when

The fed buys securities in the open area

what describes the cause and effect chain of an expansionary monetary policy?

an increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP

an increase in the price level in the AE model would

decrease AE and shift AD right

increase in business taxes will tend to

decrease AS and decrease AD

increase in price of crude oil would most likely

decrease AS in US

with cost-push inflation in the short run, there will be a

decrease in GDP

The sale of government bonds by the federal reserve banks to commercial banks will

decrease the aggregate demand

If the board of governors of the federal reserve system increases the required reserve ratio, this change will

decrease the excess reserves of member banks and thus decrease the money supply

if the dollar appreciates in value relative to foreign currencies, AD

decreases bc NX decrease

If the national incomes of our trading partners decrease, then AD

decreases because NX decreases

when national income in other nations decreases, AD in our economy

decreases because our exports will decrease

when the price level decreases

demand for money falls and interest rate falls

demand pull inflation is illustrated in the short run AS-AD model as a shift of the aggregate

demand to the right

Changes in the national incomes of our trading partners would directly impact our

exports

MPC is defined as:

extra income that a household consumes

during economic recession, taxes tend to

fall and thereby increase aggregate demand

Traditionally the fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

federal funds rate

supply-side economics focus more than other economists on

how fiscal policy affects aggregate supply

an increase in expected future income will

increase AD

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

increase both price level and real output

demand pull inflation is characterized by

increase in AD and no change in AS

which combination of factors would most likely increase AD

increase in consumer wealth and a decrease in interest rate

what shifts the aggregate demand rightward?

increase in government expenditures or a decrease in taxes

a decrease in crude oil would most likely cause a

increase of AS in US

Congress's passage of new laws significantly increasing the regulation of business would tend to

increase per unit production costs and shift the AS curve to the left

if the national incomes of our trading partners increase, then our AD

increases bc NX increase

what explains the downward slope of the AD curve

interest rate effect

AD curve shows the

inverse relationship between the price level and quantity of real GDP purchased

an increase in personal income taxes would shift the AD to the

left because C will decrease

graphically, cost push inflation is shown as a

left shift of the AS curve

if the government raises the tax rate, the workers get to keep

less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left

the expenditure multiplier concept of the AE model

magnifies the shifts of the AD curve

Lowering the discount rate has the effect of

making it less expensive for commercial banks to borrow to central banks

Some economists argue that

monetary policy should be used to stabilize the economy fiscal policy should be used to stabilize the economy fiscal policy can be used to shift the AD curve

a real-balance effect pertains to the effect of

price changes on AD while the wealth effect refers to the impact of changes in wealth on AD

AD curve/schedule shows the relationship between the total demand for output and the

price level

AS curve represents the relationship between the

price level and the production of real domestic output

Deflation refers to a situation where

price level falls and could be caused b a shift of AD to the left

changes in ___ will not shift the AD curve

productivity rates

changes in which of the following would shift the AS curve

productivity rates

when the general price level in our economy increases, what does NOT occur?

purchasing power of peoples saving will increase

an increase in input productivity will

reduce the equilibrium price level assuming downward flexible prices

a change in the prices of ___ would shift the AS curve

resources

graphically, demand pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve

If the price level decreases, then the AE schedule will shift and this translates to a

shift in AD left

an increase in government spending on goods to build or repair infrastructure

shifts AD to right has a multiplier effect shifts AS to right, but this is more important in long run

a fall in labor costs will cause aggregate

supply to increase

changes in interest rates, ceteris paribus, cause a shift in

the aggregate demand curve, but not the investment demand curve

when a commercial bank borrows from a federal reserve bank

the commercial banks lending ability is increased

when the reserve requirement is increased

the excess reserves of member banks are reduced

the level of GDP, ceteris paribus, will tend to increase when

the federal reserve buys the government securities in the open market

an increase in consumer spending can be expected to shift the AE curve

upward and the AD curve right

a decrease in consumer spending can be expected to shift the AE curve

upward and the AD left