Economics Chapter 10
from the list below match the letter of the outcome each of the following events produces upon the LRAS curve. A shifts to right B shifts to left C movement up along D movement down along Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.
(A)shifts to the right
Suppose that the full employment level of nominal GDP rises in one year from $13.8 to $14.2 trillion. The long-run equilibrium price level, however, remains unchanged at 115. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right from one year to the next? $----- nothing trillion. (Round your answer to two decimal places.)
.35
Which one of the following is not a component of total expenditures? A. Government purchases. B. Merchandise inventories. C. Consumption spending. D. Investment expenditures.
Merchandise inventories.
Consider the figure to the right. What type of variation in the position of the long-run aggregate supply (LRAS) curve could generate inflationlong dashthat is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation? A rise in the equilibrium price level could be caused by a decline in long-run aggregate supply. Hence, one possible reason for persistent inflation would be continual reductions in economywide production.
a decline reductions
year to year rightward shifts in long run aggregate supply leads to
a long run trend path for real GDP
The long-run aggregate supply curve, LRAS, is a vertical line determined by amounts of available resources such as labor and capital and by technology and resource productivity. The position of the LRAS gives the full-information and full-adjustment level of real GDP per year. The natural rate of unemployment occurs at the long-run level of real GDP per year given by the position of the LRAS. If labor or capital increases from year to year or if the productivity of either of these resources rises from one year to the next, the LRAS shifts rightward . In a growing economy, therefore, real GDP per year gradually increases over time.
answer in text
Total expenditures for domestically produced goods and services consist of A. consumer spending only. B. consumer spending, business spending, government spending, and net foreign spending. C. consumer spending, business spending, and net foreign spending. D. government spending only.
consumer spending, business spending, government spending, and net foreign spending.
From the list below, match the letter of the outcome each of the following events produces upon the AD curve LOADING.... A Shifts to right B Shifts to left C Movement up along D Movement down along Type in a single letter (A, B, C or D). Deflation has occurred during the past year. real GDP levels of all the nations major trading partners have declined there has been a decline in the foreign exchange value of the nations currency the price level has increased this year.
d b a c
According to the interest rate effect, an increase in the price level A. reduces borrowing and spending. B. reduces the aggregate quantity of goods and services demanded. C. increases nominal interest rates. D. All of the above.
d all of the above
Consider the figure to the right. If the Federal Reserve seeks to prevent supply minus side inflation from taking place as a consequence of negative economic growth, how should it change the quantity of money in circulation? How would this policy action prevent supply minus side inflation? If the Federal Reserve seeks to prevent supply minus side inflation from taking place as a consequence of negative economic growth, it should decrease the quantity of money in circulation.
decrease
Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from $11.9 trillion to $12.0 trillion, measured in base-year dollars LOADING.... During the year, no change occurs in the various factors that influence aggregate demand. As a result, the U.S. long-run equilibrium price level during this particular year will decrease .
decrease
suppose that there is a sudden rise in the price level. As a consequence economywide planned spending on purchase of goods and services will...... Which of the following is not a reason for this change in economywide planned spending?
decrease the substitution effect
Supply-side inflation can be caused by a continual
decrease in aggregate supply while aggregate demand remains unchanged.
Inflation can be caused by
decreases in the long-run aggregate supply curve or increases in the aggregate demand curve.
Inflation can be caused by an increase in aggregate demand or by a decrease in aggregate supply .
demand supply
Economic growth causes the long-run aggregate supply schedule to shift rightward over time. If the position of the aggregate demand curve does not change, the long-run equilibrium price level tends to decrease , and there is secular deflation.
rightward decrease
The position of the long-run aggregate supply curve is determined by
the production possibilities curve.
the long run aggregate supply curve is determined by
the full-employment level of real output. The long-run aggregate supply curve is a vertical line set at the real output level corresponding to a fully employed economy.
When the production possibilities curve shifts outward,
the long-run aggregate supply curve shifts to the right.
If there is persistent inflation in a growing economy,
the long-run aggregate supply is shifting to the right at a slower rate than aggregate demand.
If economic growth causes the long-run aggregate supply curve to shift rightward over time, but the aggregate demand curve does not change, we expect
the long-run equilibrium price to decline, and there will be secular deflation.
In an open economy, the total value of GDP is based on the spending decisions of individuals, firms, governments, and foreign residents.
true
Persistent inflation in a growing economy is possible only if the aggregate demand curve shifts rightward over time at a faster pace than the rightward progression of the long-run aggregate supply curve.
true
The components of GDP as calculated using the expenditure approach are identical to the components of aggregate demand.
true
The lower the price level, the greater the total planned spending on goods and services.
true
The long-run aggregate supply curve (LRAS) is equivalent to the full-employment level of real GDP.
true
The shape of the long-run aggregate supply curve (LRAS) is
vertical
The long-run equilibrium of an economy occurs
where the long-run aggregate supply curve meets the aggregate demand curve.
An increase in the U.S. price level can be caused by all of the following except
worsening economic conditions in Asia.
In the accompanying graph the equilibrium price level is ____ and the equilibrium real GDP is _____.
120; $8 trillion
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of a decrease in equilibrium real GDP with no change in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the left and aggregate demand schedule (AD) shifts to the left by an equal amount.
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP and increase in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by a larger amount.
Identify the combined shifts in long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP with no change in the equilibrium price level.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by an equal amount.
If the LRAS shifts to the right over time and during this time AD does not noticeably change, real GDP will ________ and the price level will ________.
increase; decrease
The aggregate demand curve slopes downward because of the
real-balance, interest rate and open economy effects.
inflation has occurred during the past year as a result of rightward shifts of the AD curve.
(C) movement up along
there has been an 8 percent increase in the quantity of money in circulation that has shifted the AD curve
(C) movement up along
a hurricane of unprecedented strength has damaged oil rigs factories and ports all along the nation's coast.
(B) shifts to left
Assume that the position of a nation's aggregate demand curve has not changed, but the long-run equilibrium price level has declined. Now consider the following factors: Factors a. An increase in labor productivity b. A decrease in the capital stock c. Upper A decrease in the quantity of money in circulation d. The discovery of new mineral resources used to produce various goods e. A technological improvement Other things being equal, which of these factors might account for this event?
Factors a comma d comma and e.
Which of the following will generate an increase in aggregate demand?
Government spending for the onset of a war.
Consider the figure to the right. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve? The three effects of changes in the price level are A. the real-balance effect, the interest rate effect, and the wealth effect. B. the real-balance effect, the interest rate effect, and the open economy effect. C. the real-balance effect, the income effect, and the wealth effect. D. the substitution effect, the income effect, and the wealth effect.
The three effects of decreases in the price level are the real-balance effect, the interest rate effect, and the open economy effect. the real-balance effect, the interest rate effect, and the open economy effect.
Long-run equilibrium in the economy will occur
at the price level where total planned real expenditures equals real GDP at full employment.
we draw the long run aggregate supply curve as a vertical line to reflect the fact that
changes in the price level do not alter the level of potential real output.
Economic growth is represented by the long-run aggregate supply curve (LRAS) shifting
outward to the right
In the accompanying graph if the price level is 140
real GDP exceeds total planned expenditures.
b. The equilibrium price levels in nations that are recipients of large inflows of funds from migrants will likely
rise because there is an increase in the aggregate demand in these countries.
The aggregate demand curve
shows planned purchase rates of goods and services at various price levels.
The long-run aggregate supply curve shifts outward when
there is economic growth
If the actual price level increases beyond the long-run equilibrium price level, all of the following will tend to occur except
firms offering fewer services than people wish to purchase.
PI=NGDP/ RGDP*100
formula for PI
In the figures to the right, if the economy acquires a larger amount of capital goods in the current year, does a larger or smaller outward shift in the production possibilities curve (PPC) result? Does the long-run aggregate supply (LRAS) curve shift more or less far to the right? Why? Using the three-point curved line drawing tool, draw a new PPC curve for the future year (FY) that reflects a higher capital stock in the current year (CY). Label your line 'FY Subscript New.' Using the line drawing tool, draw a new LRAS curve that shows how it responds to the increase in capital goods. Label this line 'LRAS Subscript New.' Carefully follow the instructions above, and only draw the required object. The PPC shifts out more and the LRAS shifts right more because the economy's productive capabilities ____________ with a higher capital stock.
increase
Many economist view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curve. There can be positive unemployment in this situation because.....
information is costly and rigidness always exist causing some types of unemployment (frictional and structural) to occur even in the long run after everyone in the economy has fully adjusted to any changes. the natural rate of unemployment consists of frictional and structural unemployment which is positive because information is costly and rigidities always exists causing umeployment to occur even in the long run after everyone in the economy has fully adjusted to any changes.
the long run aggregate supply curve
is vertical because changes in the price level have no effect on real output.
The long-run aggregate supply curve will shift to the --- left right , the equilibrium price level will -------- decrease increase , and equilibrium GDP will ----- increase decrease .
left increase decrease
This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for both occurrences? In the response box for each of the following pair of events insert Y to indicate YES and N to indicate NO. a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services. 2 Upper N b. There was a minor technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year. n Upper Y c. Labor productivity increased somewhat throughout the year, and consumers significantly increased their total planned purchases of goods and services. n Upper Y d. The capital stock increased somewhat during the year, and the quantity of money in circulation declined considerably. n n
n y y n
Assume that the economy is in long-run equilibrium with complete information and that input prices adjust rapidly to changes in the prices of goods and services. If there is a sudden rise in the price level induced by an increase in aggregate demand, real GDP will not change
not change
The idea that higher price levels in the United States result in foreign residents desiring to buy fewer U.S.-made goods and U.S. residents desiring to buy more foreign-made goods is referred to as the
open economy effect
According to the real-balance effect, an increase in the price level
reduces an individual's expenditures due to a decrease in the real value of cash balances.
A leftward shift in the aggregate supply schedule could be caused by
reductions in labor force participation.
Suppose that the long-run aggregate supply curve is positioned at a real GDP level of $14 trillion in base year dollars, and the long-run equilibrium price level (in index number form) is 120. The corresponding full employment level of nominal GDP must be $ 3 16.8 trillion dollars (Enter your response rounded to one decimal place).
16.8
By how much, if any, has the aggregate demand curve LOADING... shifted to the right? A. AD has shifted by less than $0.4 trillion. B. AD has shifted exactly by $0.4 trillion. C. AD has shifted exactly by $0.35 trillion. D. AD has not shifted
AD has shifted exactly by $0.35 trillion.
Which of the following statements is true?
Annual U.S. inflation rates rose considerably during the 1970s but declined to lower levels after the 1980s.
suppose that during the past 3 years, equilibrium real GDP in a country rose steadily, from $438 billion to $498 billion, but even though the position of its aggregate demand curve remained unchanged, its equilibrium price level steadily declined, from 110 to 105. What could have accounted for these outcomes, and what is the term for the change in the price level experienced by this country?
Economic growth without an increase in aggregate demand; secular deflation.
Which of the following factors could cause the economy to experience supply-side inflation?
Government laws which say that the average work week must be reduced by one hour every year.
What determines the total value of annual U.S. GDP? A. The Federal Reserve Board. B. Wall Street. C. The spending and production decisions of consumers, firms, governments, and foreigners. D. The Congressional Budget Office.
The spending and production decisions of consumers, firms, governments, and foreigners.
The total of all planned real expenditures in the economy is
aggredate in demand
Consider the accompanying diagram when answering the questions that follow. Suppose that the current price level is Upper P 2. In this case, the price will fall toward Upper P 1because A. actual real GDP would be greater than total planned real expenditures. B. firms would stand ready to offer more services than people wish to purchase. C. inventories of unsold goods would begin to accumulate. D. All of the above. E. A and B, but not C.
all of the above
The long-run aggregate supply curve can shift to the right due to A. improvements in technology. B. improvements in labor productivity. C. economic growth resulting from an increase in resources. D. All of the above.
all of the above
Consider the figure to the right. What change in the position of the aggregate demand curve could generate inflationlong dashthat is, an increase in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Federal Reserve could generate such a change in the position of the aggregate demand (AD) curve? A rise in the equilibrium price level could be caused by an increase in aggregate demand. The Federal Reserve could generate such a change in the position of the aggregate demand (AD) curve by increasing the quantity of money placed into circulation.
an increase increasing
In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new stereos or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption. a. Based on the above information, developing countries' income inflows transmitted by migrant workers are primarily affecting their economies' long-run aggregate demand curves.
demand curve
Consider this statement: "Persistent inflation in a growing economy is possible only if the aggregate demand curve shifts rightward over time at a faster pace than the rightward progression of the long-run aggregate supply curve." This statement is describing
demand side inflation
When the price level falls, these three effects work together to generate ---------- movements along the economy's aggregate demand curve.
downward
the shape of the aggregate demand curve (AD) is
downward sloping
For each event below, suppose that the economy begins at the long-run equilibrium point A in the figure to the right. Identify which of the other points on the diagramminuspoints B, C, D, or E long dash could represent a new long-run equilibrium after the described events take place and move the economy away from point A. Events a. Significant productivity improvements occur, and the quantity of money in circulation decreases: 8 Upper E. b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government enacts a large tax decrease for the nation's households: c Upper D. c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government increases its spending on goods and services. e Upper B.
e d b
When the economy is in long-run equilibrium, the price level adjusts to equate total planned real expenditures by individuals, businesses, the government, and foreign (non-U.S.) residents with total planned production by firms.
expenditures production
Aggregate demand is the total of all planned expenditures in the economy, and aggregate supply is the total of all planned production in the economy. The aggregate demand curve shows the various quantities of total planned spending on final goods and services at various price levels; it is downward sloping. There are three reasons why the aggregate demand curve is downward sloping. They are the real-balance effect, the interest rate effect, and the open-economy effect. The real-balance effect occurs because price level changes alter the real value of cash balances, thereby causing people to desire to spend more or less, depending on whether the price level decreases or increases. The interest rate effect is caused by interest rate changes that mimic price level changes. At higher interest rates, people seek to buy fewer houses and cars, and at lower interest rates, they seek to buy more . The open economy effect occurs because of a shift away from expenditures on domestic goods and a shift toward expenditures on foreign goods when the domestic price level increases.
expenditures production spending real balance interest rate aopen economy real balance interset rate fewer more domestic foregin
Suppose that the position of a nation's long-run aggregate supply (LRAS) curve has not changed, but its long-run equilibrium price level has decreased. FACTOR a. A fall in the value of the domestic currency relative to other world currencies b. Upper A decrease in the quantity of money in circulation c. An increase in the labor force participation rate d. An increase in taxes e. A fall in real incomes of countries that are key trading partners of this nation f. Increased long-run economic growth Of the factors given above, which could account for the price level decrease with constant LRAS?
factors b,d,e
A change in the price level has no effect on the real value of cash balances.
false
An increase in the price level shifts the aggregate demand curve (AD) to the left.
false
An increase in long-run aggregate supply cuases the price level to increase, and is therefore inflationary.
false
The aggregate demand curve is essentially the same as the demand curve for an individual product.
false