Economics Chapter 13. Aggregate Supply/Demand
True/False An increase in taxes shift the aggregate demand curve to the right
False An increase in taxes shift the aggregate demand curve to the left
Potential GDP is independent of
Price Level
A change in the price level, produces
a movement along the demand curve
If the cost of production decrease, there is
an increase in the aggregate supply and the AS curve shifts rightward
An increase in the price level leads to
an upward movement along the aggregate supply curve
When the price level rises and increases the demand for money, the nominal and real interest rate
both rise
An increase in the money wage rate ___________ and an increase in the money prices of raw materials ______________.
both shift the AS curve leftward
Over the business cycle, the quantities of capital, human capital, and entrepreneurial talent....
change gradually and do not fluctuate much
Which of the following changes aggregate supply and shifts the aggregate supply curve?
change in potential GDP and change in the money wage rate
A change in the price level
changes the quantity of real GDP supplied
Raising interest rates causes aggregate demand to
decrease
If the price level doubles, it will
decrease the buying power of money
A year over year ___________ in the buying power of money means that definitely from one year to the next.
decrease; the price level increased
If the economy is at macroeconomic equilibrium, then real GDP
might be equal to, greater than, or less than potential GDP
If the price level rises but the money wage rate does not, then firms will hire _________ labor and the quantity of real GDP supplied will ____________.
more; increase
When the domestic price level increases, exports decrease and imports increase. Other things the same, this change is illustrated by a...
movement upward along the demand curve
If the price level increases, there is _____________ the AD curve and the quantity of real GDP demanded ____________.
movement upward along; decreases
The money wage rate is constant when moving along
only the aggregate supply curve
Moving along the aggregate supply curve,
only the price level changes
Because there is a ___________ relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is ________curve
positive; an upward-sloping
Which of the following shifts the aggregate supply curve rightward? i. the money wage rate rises ii. potential GDP increases iii. government expenditure on goods and services increases
potential GDP increases, which shifts curve rightward
Changes in ______ cause a movement along the aggregate demand curve while changes in ________ shift the aggregate demand curve
price level; taxes
The slope of the aggregate supply curve shows that, all else the same, the.....
quantity of real GDP supplied increases as the price level increases
If the money wage rate does not change, a decrease in the price level will ______________ the real wage rate and ___________ firms' profit.
raise; decrease
A fall in the real wage rate ________ firms' profits and leads to ________ in the quantity supplied.
raises; an increase
Moving along the potential GDP line, when the price level changes, the.......
real wage rate stays at the full-employment equilibrium level money wage rate changes by the same percentage money prices of non-labor resources change by the same percentage
The AD curve is a graph depicting the
relationship between the price level and the quantity of real GDP demanded
The real wage rate DEFINITELY falls if the money wage rate __________________ and the price level _________.
remains constant; rises
Increase in the quality of capital, shifts the Potential GDP line _____________ and the aggregate supply curve _______________
rightward; rightward
A rise in the U.S. price level brings a ________ in the price of U.S. exports relative to imports that ________ exports of U.S. goods, bringing ________ in the quantity of U.S. real GDP demanded.
rise; decreases; a decrease
In the short run, a rise in the price level brings a ________ in the real interest rate that ________ investment, bringing ________ in the quantity of real GDP demanded.
rise; decreases; a decrease
When the price level rises, the real interest rate ____________ and the quantity of real GDP demanded ____________.
rises; decreases
It is profitable to hire more labor if the price level __________ and the money wage rate ________.
rises; falls
When potential GDP increases, the potential GDP line ____________ and the aggregate supply curve ____________
shifts rightward; shifts rightward
When the money wage rate falls, the aggregate supply curve
shifts righward
During an inflationary gap,
the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that exceeds potential GDP.
Macroeconomics equilibrium occurs when
the aggregate quantity demanded is equal to the aggregate quantity supplied, even if they are not equal to potential GDP
If real GDP is greater than potential GDP, then to restore equilibrium, __________ and the price level ___________-
the aggregate supply curve shifts leftward; rises
The AS shifts leftward if
the money wage rate increases
Which does not affect potential GDP?
the quantity of money
If the equilibrium price level is 135 but the actual price level is 120, then
the quantity of real GDP demanded is greater than the quantity of real GDP supplied.
If the equilibrium price level is 135 but thee actual price level is 150, then
the quantity of real GDP demanded is less than the quantity of real GDP supplied
The aggregate supply curve shows the relationship between
the quantity of real GDP supplied and the price level
When the price level rises and the money wage rate does not change,
the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change
Along the aggregate supply curve, the quantity of real GDP supplied increases when the price level rises because
the real wage rate falls
The quantity of real GDP supplied increases when the price level increases because
the real wage rate falls
The line showing potential GDP is a vertical straight line because
there is only one level of full employment at any point in time
True/False A change in money wage does not shift the aggregate demand curve
true
True/False At full employment, aggregate supply is equal to potential GDP
true
An increase in government expenditure on goods and services leads to an .....
aggregate demand curve shifting rightward
A recessionary gap occurs when ___________ so that the real GDP is _____________ potential GDP.
aggregate demand decreases; less than
If real GDP is less than potential GDP, then the ____________ and the price level ____________.
aggregate supply curve shifts rightward; falls
As the money wage rate increases,
aggregate supply decreases
Starting from a situation of full employment, an increase in aggregate demand creates _____________ and ____________ the price level.
an inflationary gap; raises
If firms' expectations about the future become pessimistic so that they think future profits will be lower, then aggregate demand
decreases and the AD curve shifts leftward
A rise in the price level,
decreases the quantity of real GDP demanded
When cost pull inflation starts, real GDP ___________ and the price level _______--
decreases; rises
At a peak in the business cycle, the macroeconomic equilibrium is _____________ than the level of potential real GDP
greater
Over the business cycle, factors such as the quantity of capital, human capital and technology .....
grow but do not fluctuate as much as the quantity of labor employed
The aggregate supply curve illustrates that the
higher the price level, the greater the quantity of real GDP supplied
The _____________, the ___________ is the quantity of rela GDP supplied
higher the price level; greater
The slope of the aggregate supply curve shows that the ___________ the price level, the _____________________
higher; the greater is the quantity of real GDP supplied
Main causes for cost push inflation
increase in the money wage rate increase in the price of raw materials
When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms
increase production and prices
When the investment increases, the ___________ in aggregate demand is _____________ the change in investment.
increase; greater than
If the expected inflation rate increases, aggregate demand
increases
Moving alng the aggregate supply curve, when the price level rises, the quantity supplied
increases
If the fed increases the quantity of money, then aggregate demand
increases and the curve shifts rightward
Other things remaining the same, an increase in the price level
increases the quantity of real GDP supplied
If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is an
inflationary gap
The economy is at full employment. If aggregate demand increases, an
inflationary gap is created and the AS curve shifts leftward as the money wage rate rises.
__________ increases the quantity of real GDP supplied and is shown as a movement along the AS curve
a rise in the price level
True/False A fed raising the interest rate shifts the aggregate demand curve to the left
True
If European economies enter a recession, U.S. aggregate demand
U.S. aggregate demand decreases and the U.S. AD curve shifts leftward.
When the U.S. price level rises relative to other nations' price levels, then....
U.S. exports decrease U.S. imports increase, and there is a movement upward along the aggregate demand curve
Which of the following changes aggregate supply and shits the AS curve? a change in the price of a major resource increases in the amount of capital a change in the money income of consumers
a change in the price of a major resource increases in the amount of capital
Inflation can be started by:
a decrease in aggregate supply or an increase in aggregate demand
A country reports that its price level fell and the money wage rate did not change... These changes led to...
a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied
A rise in the price level produces ____________ the potential GDP line
a movement upward along
Moving along the AS curve, when the price level increases, the real wage rate
falls, and there is an increase in the quantity of real GDP supplied
An economy experiences a recessionary gap. As the economy adjusts to full employment, the money wage rate...
falls, shifting the aggregate supply curve rightward.
If real GDP is less than potential GDP, then money wage rate ___________, and aggregate supply _________ so the price level ______________.
falls; increases; falls
If the price level falls and money wage rate does not change, some firms will ________________ and there is _____________.
shut down; a decrease in the quantity of real GDP supplied
Moving along the potential GDP line, the money wage rate changes by the same percentage as the change in the price level so that the real wage rate......
stays at the full-employment equilibrium level
An increase in __________ increases potential GDP and ___________ aggregate supply
technology; increases