ECON202 Ch. 20
Which of the following is correct?
Over the business cycle investment fluctuates more than consumption.
As the price level rises...
People are less willing to lend, so interest rates rise.
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected...
Production is less profitable and employment falls.
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.
The model of aggregate demand and aggregate supply explains the relationship between...
Real GDP and the price level.
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.
Economic variables we are most interested in are...
Real variables, but we usually observe nominal variables.
The aggregate quantity of goods and services demanded changes as the price level rises because...
Real wealth falls, interest rates rise, and the dollar appreciates.
Stagflation exists when prices...
Rise and unemployment rises.
An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level...
Rises, shifting aggregate supply left.
Which of the following would cause stagflation?
Rising oil prices.
Which of the following shifts aggregate demand to the left?
Stock prices fall for some reason other than a change in the price level.
Other things the same, when the price level falls, interest rates...
Fall, which means consumers will want to spend more on homebuilding.
If aggregate demand shifts right, then in the short run...
Firms will increase production. In the long run, increased price expectations shift the short-run aggregate supply curve to the left.
In which case can we be sure real GDP rises in the short run?
Foreign economies expand and government purchases rise.
Which part of real GDP fluctuates most over the course of the business cycle?
Investment expenditures.
Which of the following shifts the short-run aggregate supply curve to the left?
A decrease in the expected price level.
Most economists believe that in the long run, changes in money supply...
Affect nominal but not real variables. This view that money is ultimately neutral is consistent with classical theory.
Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?
As people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.
At the end of World War II, 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.
Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by...
Continued technological progress and continuing increases in the money supply.
The misperceptions theory of short-run aggregate supply curve says that quantity of output will decrease if the price level...
Decreases by more than expected so that firms believe the relative price of their output has decreased.
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.
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. How is the new long-run equilibrium different from the original one?
The price level is higher and real GDP is the same.
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. How is the new long-run equilibrium different from the original one?
The price level is higher and real GDP is the same.
Which of the following is correct?
When real GDP falls, the rate of unemployment generally rises.