Macro exam 3
Why is the aggreate demand curve downward sloping?
-The wealth effect -Interest rate effect -international trade effect -
Which of the following causes the short run aggregate supply curve to shift to the right?
-a positive technological change
What has contributed to the slow growth in employment in recent years?
-the number of baby boomers reaching retirement age -the severity of the 2007-2009 recession
short run aggregate supply curve
-upward sloping because over the short run as the price level increases, the quantity of goods and services firms are willing to supply will increase ( main reason for this is because prices of inputs rise more slowly than the prices of final goods and services )
the variables that cause the aggregate demand curve to shift :
1.changes in gvt policies 2. changes in expectations of household and firms 3. changes in foreign variables
the failure of workers and firms to predict the price level accurately results in an upward sloping SRAS curve because :
1.contract make some wages and prices "sticky" 2.firms are often slow to adjust wages 3.menu costs make some prices sticky
5 variables that shift the short run aggregate supply curve
1.increase in the labor force and in the capital stock (shift to the right) 2.technological change ( increase shifts to the right ) 3.expected changes in the future price level ( if workers and firms expect the price level to increase by a certain percentage, the SRAS curve will shift by an equivalent amount, holding all other variables constant that affect the SRAS curve ) 4.adjustments of workers and firms to errors in past expectations about the Price level
The aggregate demand curve slopes downward for all of the following reasons except:
A lower price level makes imports from other countries less expensive and US citizens bu more imports
The federal gvt. increases taxes in an attempt to reduce a budget deficit.
Because this is a change in consumption it will cause a shift to the left in the aggregate demand curve.
Firms become more optimistic and increase their spending on machinery and equipment.
Because this is a change in investments it will cause a shift to the right in the aggregate demand curve.
The us economy experiences 4 percent inflation.
Because this is a change in the price level, it will cause a movement along the aggregate demand curve.
Fiscal Policy
Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives
What is the most importanat ariable when determining consumption by households?
Current income
Which statement is correct if real GDP in the US declined by more during the 2007-2009 recessions that did real GDP in Canada, China and other trading partners of the US?
Imports to the US fell more than the US exports, leading to an increase in net exports
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, firm and the gvt.
Which of the following does not cause the aggregate demand curve to shift?
a change in the price level.
aggregate demand (AD) curve
a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms and the government
long run aggregate supply curve (LRAS)
a curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied. -it is a vertical line at the potential level of real GDP -shifts to the right each year ( due to increase in capital stock ) as potential real GDP increases each year
The international trade effect refers to the fact that an increase in price level will result in
a decrease in exports and an increase in imports
aggregate demand and aggregate supply model
a model that explain short run fluctuation in real GDP and the price level
an increase in the price level will cause a .... the aggregate demand curve
a movement up along
What is the effect of an increase in the price level on the short run aggregate supply curve?
a movement up along a stationary curve
If the economy adjusts trough the automatic mechanism, then a decline in aggregate demand causes
a recession in the short run and a decline in the price level in the long run
Which of the following would cause a decreases in real GDP and if large enough a recession>
a reduction in consumer confidence that causes aggregate demand to fall.
Which of the following would cause an increase in the price level ?
a reduction in taxes that increases aggregate demand
a supply shock is
a sudden increase in the price of an important natural resource resulting in a leftward shift of the SRAS curve
which of the following is usually the cause of stagflation?
a supply shock as a result of an unexpected increase in the price of a natural resource
Which of the following factors will cause the long run aggregate supply curve to shift to the right>
all of these -technological change -an increase in the number of workers in the economy -the accumulation of more machinery and equipment
The SRAS curve will shift to the left if there is
an increase in expected future prices .
if aggregate demand just increased, which of the following may have cause the increase?
an increase in gvt purchases
Which of the following scenarios would lead to a reduction in real GDP and may even cause a recession ?
an increase in oil price that causes short run aggregate supply to fall.
Which of the following scenarios would lead to an increase in the price level ?
an increase in oil price that decreases short run aggregate supply
the SRAS curve will shift to the left if there is
an increase in the adjustment of workers and firms prior underestimation of the price level
Which of the following causes the short run aggregate supply curve to shift to the left?
an increase in the expected price of an important natural resource
the SRAS curve will shift to the left if there is
an increase in the expected price on an important natural resource.
the international trade effect states that
an increase in the price level will lower net exports
the SRAS curve will shift to the right if there is
an increes in productivity
supply shock
an unexpected event that causes the short run aggregate supply curve to shift
in the long run, changes in the price level do not affect eh lever of real GDP
because changes in price level do not affect the number of workers, the capital stock or technology
How can gvt policies shift the aggregate demand curve to the right?
by increasing gvt purchases
The long run aggregate supply curve is vertical because in the long run
changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock and technology.
stagflation is
combination of inflation and recession
workers and firms often enter into contracts that fix prices or wages for year at a time. IF the price level turns out to be higher of lower than was expected when the contract was signed, one party to the contract will lose out. Despite knowing this, workers and firms sill sign long term contracts because
contracts are common in the unionized sectors of the economy as they are seen as protection from unanticipated inflation
higher personal income taxes
decrease aggregate demand
An increase in what the price level is expected to be in the future will .... the SRAS curve because this is a change in
decrease; expectations about future prices
The price level that is currently higher than expected will ..... the SRAS curve because this is a change in
decrease; an adjustment to past errors in expectations about future prices
An unexpected increase in the price of an important raw material will .... the SRAS curve because this is a change in ....
decrease; the price of an important natural resource
The aggregate demand curve slopes downward due to the wealth effect, the interest rate effect, and the international trade effect and the demand curve for an individual product slopes downward
due to consumers substituting the more expensive product for cheaper goods.
The interest rate effect refers to the fact that a higher price level results in
higher interest rates and lower investment
household wealth
households assets - households debts
Spending on housing is likely to fluctuate more than spending by households on consumer durables such as automobiles or furniture, or spending by firms on plant and equipment because
housing is very sensitive to inters rate changes which are cyclical
International trade effect
if price level in the US increases relative to other nations, US exports will become more expense and imports will become less expensive. Foreigners may not buy as much US products, and US consumers will prefer to buy foreign goods. Exports will fall, imports will rise. Quantity of demanded will fall. Lower US prices will have the opposite effect
Which is true?
in the long run changes in the price level do not affect the level of real GDP
the short run aggregate supply curve slopes upward because of all of the following reasons except
in the short run an unexpected change in the price of an important resource can change the cost to firms
An article in the Economist magazine noted that " the economy's potential to supply goods and services is determined by such things as labor force and capital stock as well as inflation expectations" This list of the determinants of potential GDP is
incorrect since changes in the expected price level affect short run aggregate supply but no the long run aggregate supply
An article in the Economist magazine noted that " the economy's potential to supply goods and services is determined by such things as labor force and capital stock, as well as inflation expectations. This list of the determinants of potential GDP is :
incorrect since changes in the expected price level affect short run aggregate supply but no the long run aggregate supply.
the SRAS curve will shift to the right if there is an
increase in the labor force or capital accumulation
If the economy is initially at full employment equilibrium, then an increase in aggregate demand causes... in real GDP in the short run and... in the price level in the long run
increase; increase
an increase in the labor force will .... the SRAS curve because this is a change in
increase; the productive capacity of the economy
in the short run, an increase in aggregate demand ..... whereas in the long run an automatic mechanism brings ....
increases the price level and actual GDP beyond potential GDP; the economy back to potential GDP but the price level remains higher
The interest rate effect can be described as an increase the price level that raises the interest rate and chokes off
investment and consumption spending
because 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
Increases in the growth rate of domestic GDP compared to the growth rate of foreign GDP will make the aggregate demand curve shift to the
left
decrease in gvt purchases shifts the aggregate demand curve to the
left
if firms in other countries buy fewer us goods or if firms and households in the US buy more foreign goods, new exports will fall, and the aggregate demand curve will shift to the
left
if us exports fall, and us imports rise the aggregate demand curve will shift to the
left
increases in business taxes taxes reduce the profitability of investment spending and shift the aggregate demand curve to the
left
an increase in interest rates will cause a ..... the aggregate demand curve
leftward shift
N increase in state income taxes will cause a .... the aggregate demand curve
leftward shift of
why would the causes of recessions and its severity affect the accuracy of forecasts of when the economy would return to potential GDP?
models used for forecasting are based on historical experience and the relationships in the model can change.
416
opg
why does the short run aggregate supply curve slope upward?
profits rise when the prices of the goods and services firms sell rise more rapidly than the prices they pay for inputs
Increases in firm's exceptions of their future profitability and investment spending will make the aggregate demand curve shift to the
right
decreases in business taxes shift the aggregate demand curve to the
right
increase in gvt purchases shirts the aggregate demand curve to the
right
increased consumer consumption will shift the aggregate demand curve to the
right
increases in gvt purchases will make the aggregate demand curve to shift to the
right
lower personal income taxes shift the aggregate demand curve to the
right
a faster income growth in other countries will cause a ..... the us aggregate demand curve
rightward shift
an increase in gvt. purchases will cause a .... the aggregate demand curve
rightward shift
if firms and workers cold predict the future price level exactly the short run aggregate supply curve would be the
same as the long run aggregate supply curve
a technological change will cause the long run aggregate supply curve to
shift to the right
aggregate supply
shows the effect of changes in the price level on the quantity of good and services that firms are willing and able to supply -there are two types : short run and long run
Stagflation occurs when a
supply shock shift the SRAS to the left, increasing the price level and decreasing actual GDP
the SRAS curve will shift to the right if there is
technological change
suppose that workers and firms could always predict next year's price level with perfect accuracy. Under these circumstances
the SRAS curve would be the same as the LRAS
monetary policy
the actions the Federal Reserve takes to manage the money supply and interest rates to achieve macroeconomic policy objectives
Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result,
the long run aggregate supply curve will shift to the right
aggregate demand curve tell us the relationship between
the price level and the quantity of real GDP demanded holding everything else constant
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.
Which of the following is a correct statement about the students analysis?
the student is incorrect because the aggregate demand curve does not shift because of price level change
If the price level increases
there will be a movement up along a stationary aggregate demand curve
The recession on 07-09 made many consumers pessimistic about their future incomes.s How does this increased pessimism affect the aggregate demand curve?
this will shift the aggregate demand curve to the left
If meny costs were eliminated the short run aggregate supply curve will be .... because of ....
upward sloping; wage price stickiness and slow wage adjustments by firms
The effect of the price level on consumption is called the
wealth effect
interest rate effect.
when prices rise, households and firms need more money to finance buying and selling, so they will hold on to more money by removing money from banks or selling bonds. This drives up interest rates. They borrowing will decline. Investment spending reduces, and quantity of good san services demanded will also reduce
Which of the following is NOT true when the economy is in macroeconomic equilibrium?
when the economy is at long run equilibrium firm will have excess capacity
Which of the following best describes the wealth effect?
when the price level falls, the real value of household wealth rises
The wealth effect refers to the fact that
when the price level falls, the real value of household wealth rises, and so will consumption
