MACRO: 13-1

Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C.

- Lower interest rates - Lower taxes - Decrease in the U.S. exchange rate relative to other currencies - Increased consumer optimism

Which of the following factors does cause the aggregate demand curve to​ shift?

-a change in the expectations of households and firms -a change in foreign variables -a change in government monetary or fiscal policies

Consider the​ downward-sloping aggregate demand​ (AD) curve to the right. Which of the following results in a movement from point A to point B​ (a movement up along the AD​ curve) or from point A to point C​ (a movement down along the AD​ curve)? ​(Mark all that​ apply.)

-wealth effect -interest rate effect

Which of the following is one explanation as to why the aggregate demand curve slopes​ downward?

Decreases in the price level raise real wealth and increase consumption spending.

Which of the following statements is correct if real GDP in the United States declined by more during the 2007−2009 recession than did real GDP in​ Canada, China, and other trading partners of the United​ States?

Imports to the United States fell more than the U.S.​ exports, leading to an increase in net exports.

Will the outcome you discussed above result in a movement along the U.S. aggregate demand curve or a shift of the aggregate demand​ curve? Briefly explain.

Shift of the U.S. aggregate demand​ curve, because this is not a change in the price level.

German luxury car exports were hurt in 2009 as a result of the recession. How did this decrease in exports affect​ Germany's aggregate demand​ curve?

The aggregate demand curve shifted to the left.

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand​ curve?

They will shift the aggregate demand curve to the right.

The recession of 2007−2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand​ curve?

This will shift the aggregate demand curve to the left.

If the U.S. dollar decreases in value relative to other​ currencies, how does this affect the aggregate demand​ curve?

This will shift the aggregate demand curve to the right.

An increase in the value of which of the following would increase household​ wealth?

a credit card balance

The​ international-trade effect refers to the fact that an increase in the price level will result in

a decrease in exports and an increase in imports.

Which of the following would cause a decrease in aggregate​ demand?

a decrease in government spending -Aggregate demand consists of​ consumption, investment, government​ spending, and net exports. As taxes​ fall, disposable income increases which causes consumption to increase. A lower interest rate will increase investment and consumption. A decrease in the exchange rate raises net exports as U.S. goods become cheaper to foreigners. A decrease in government spending will cause a direct decrease in aggregate demand.

The aggregate demand curve is downward sloping because

an increase in the price level reduces real money​ holdings, which reduces the amount of expenditures.

The international trade effect states that

an increase in the price level will lower net exports.

From August 2009 to May​ 2017, the Standard​ & Poor's Index of 500 stock prices increased by more than 135​ percent, while the consumer price index increased by less than 15 percent. These changes would have caused

an increase in the real value of household​ wealth, which shifted the aggregate demand curve to the right.

How can government policies shift the aggregate demand curve to the​ right?

by increasing government purchases

A movement from point A to point C could be the result of a

change in the expectations of households.

Consider the two aggregate demand curves in the graph at right. A movement from point A to point B on AD1 could be the result of a

change in the price level

The federal government increases taxes in an attempt to reduce a budget deficit. Because this is a change in ___________ , it will cause a in___________ the aggregate demand curve.

consumption, shift to the left

An economics student makes the following​ statement: ​"It's easy to understand why the aggregate demand curve is downward​ sloping: When the price level​ increases, consumers substitute into less expensive​ products, thereby decreasing total spending in the​ economy." This statement is false because the aggregate demand curve is

downward sloping because as prices​ rise, consumer real wealth​ declines, interest rates​ rise, and exports become more expensive.

Aggregate demand​ (AD) is comprised of expenditure components that​ include:

government​ spending, consumption,​ investment, and net exports.

The interest rate effect refers to the fact that a higher price level results in

higher interest rates and lower investment.

Deflation will

increase the quantity of real GDP demanded.

Briefly explain whether the combination of other currencies rising against the dollar and stronger economic growth in Asia and Europe had led to an increase or a decrease in U.S. net exports.

increase, because US exports are cheaper

Firms become more optimistic and increase their spending on machinery and equipment. Because this is a change in _______ it will cause a _____ the aggregate demand curve.

investment, shift to the right

Because of the slope of the aggregate demand curve we can say that a decrease in the price level

leads to a higher level of real GDP demanded

An increase in interest rates will cause a __________ the aggregate demand curve

leftward shift of

An increase in the price level will cause a _____ the aggregate demand curve

movement up along

The aggregate demand curve shows the relationship between

price level and output demanded

The U.S. economy experiences 4 percent inflation. Because this is a change in the ___________ it will cause a ____________ the aggregate demand curve.

price level, movement along

A faster income growth in other countries will cause a __________ of the US aggregate demand curve

rightward shift of

An increase in government purchases will cause a _____________ the aggregate demand curve

rightward shift of

Suppose the U.S. GDP growth rate is faster relative to other​ countries' GDP growth rates. U.S. imports will therefore increase faster than U.S.​ exports, and this will

shift the aggregate demand curve to the left.

The basic aggregate demand and aggregate supply curve model helps explain

short term fluctuations in real GDP and the price level.

A monetary policy change that causes a decrease in interest rates will result in

the aggregate demand curve shifting to the right.

What relationship is shown by the aggregate demand​ curve? The aggregate demand curve shows the relationship between

the price level and the quantity of real GDP demanded by​ households, firms, and the government.

What relationship is shown by the aggregate supply​ curve? The short run aggregate supply curve shows the relationship in the short run between

the price level and the quantity of real GDP supplied by firms.

If the price level​ increases, then

there will be a movement up along a stationary aggregate demand curve.

The wealth effect refers to the fact that

when the price level falls, the real value of household wealth rises, and so will consumption

Give the three reasons the aggregate demand curve slopes downward. The U.S. aggregate demand curve slopes downward due to all of the following reasons:

​- interest-rate effect, where a change in the price level affects investment. -​international-trade effect, where a change in the price level affects net exports. -wealth​ effect, where a change in the price level affects consumption.

An increase in the price level results in​ a(n) ___________ in the quantity of real GDP demanded because​ ___________.

​decrease; a higher price level reduces​ consumption, investment, and net exports.

Last​ week, six Swedish kronor could purchase one U.S. dollar. This​ week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will​ _____________ exports from the U.S. to Sweden and​ __________ U.S. aggregate demand.

​decrease; decrease

Compared to the U.S. aggregate demand​ curve, the reason that the demand curve for an individual​ product, such as​ bananas, slopes downward is

​different, because consumers can substitute between individual products.

When the price level in the United States falls relative to the price level of other​ countries, ________ will​ fall, ________ will​ rise, and​ ________ will rise.

​imports; exports; net exports