Macro ASAD Model Test
Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have to happen to aggregate demand?
It would have to shifted left by more than aggregate supply.
Keynes explained that recessions and depressions occur because of
inadequate aggregate demand.
The appearance of the long-run aggregate supply (LRAS) curve
indicates that Y1 is the natural rate of output
An increase in the price level and a reduction in output would result from
natural disasters such as hurricanes, floods, and droughts.
The change in real GDP that occurs when an increase in the price level leads to a change in the relative prices of imports and exports is a result of the
net export effect
Most economists use the aggregate supply model primarily to analyze
short-run fluctuations in the economy.
The short run aggregate supply curve slopes upward because of
sticky wages and prices
Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?
It would have to shifted left by more than aggregate supply
What best describes the short-run aggregate supply curve?
A curve indicating the level of real output that will be produced at each possible price level.
What shifts the short-run aggregate supply curve to the right?
A technological advance
Which of the following can explain the change int he price level and output during World War II?
Aggregate demand shifted right
Which of the following alone can explain the change in the price level and output during World War II?
Aggregate demand shifted right.
Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. What happens to the expected price level and what impact does this have on wage bargaining?
The expected price level rises. Bargains are struck for higher wages.
Imagine that in 2014 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-term 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.
Actual employment relates to full employment because it is...
below full employment in a recession
Historical evidence for the U.S. economy indicates that
changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle.
During recessions which type of spending falls?
consumption and investment
The long-run effect of an increase in government spending is to
raise the price level and leave the real output unchanged.
Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging enacted. In the short run
real GDP will fall and the price level might rise, fall, or stay the same.
Investment is
sensitive to interest rate changes, a small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
Suppose the economy is in long-run equilibrium. Concerns about pollution cause the government to significantly restrict the production of electricity. At the same time, the value of the dollar falls. In the short-run, what happens to price level and real GDP?
the price level will rise, and real GDP might rise, fall, or stay the same.
As the average price level decreases, the purchasing power of people's cash balances increases. This results in an increase in spending. This effect is called
the real balance effect
