Macroeconomics Chapter 12
The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the ____
right
The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to ____
rise
True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded
False
A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve. -a flattening of -the vertical shape of -a movement along -a shift of
a shift of
An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect. -interest rate -international trade -wealth -consumer
wealth
A decrease in aggregate demand with constant aggregate supply results in _____. -full employment -seasonal unemployment -structural unemployment -cyclical unemployment -frictional unemployment
cyclical unemployment
Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at _______. -high levels -full strength -low levels -reduced strength
full strength
Higher expected returns on investment will ______. -decrease the demand for capital and shift the aggregate demand curve to the left -increase the demand for capital and shift the aggregate demand curve to the right -increase the demand for capital and shift the aggregate demand curve to the left -decrease the demand for capital and shift the aggregate demand curve to the right
increase the demand for capital and shift the aggregate demand curve to the right
A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______. -decrease;, right -increase; right -decrease; left -increase; left
increase; left
Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______. -investment spending -government spending -consumer spending -net export spending
investment spending
An increase in real interest rates will ______ investment spending and ______ aggregate demand. -raise; increase -lower; increase -raise; reduce -lower; reduce
lower; reduce
If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates. -national domestic wages; employment -national income abroad; exchange -national domestic income; interest -national wages abroad; investment
national income abroad; exchange
In the immediate short run for aggregate supply, both input and output prices ____. -remain fixed -vary wildly -fluctuate mildly -are identical
remain fixed
In the short run, output prices are ______ and ______ prices are ______. -sticky; input; flexible -flexible; input; sticky -stable; import; high -low; export; unpredictable
flexible; input; sticky
Select all that apply Select all the following that were characteristic of economic conditions in the United States during the 1990s. -Low aggregate demand -Full employment -Strong growth -Decreased productivity -Very low inflation
Full employment Strong growth Very low inflation
Which of the following will increase per-unit costs and reduce short-run aggregate supply? -Lower business taxes -Deregulation -Higher business taxes -Increased subsidies to firms
Higher business taxes
Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy? -The immediate-short-run curve -The short-run curve -The extended-long-run -The long-run curve
The short-run curve
Deflation occurs when there is ______. -a decline in wages -a decrease in unemployment -a recession -a decreasing aggregate price level
a decreasing aggregate price level
Deflation occurs when there is ______. -a decline in wages -a decreasing aggregate price level -a recession -a decrease in unemployment
a decreasing aggregate price level
Investment spending refers to ______. -adding to physical capital -buying stocks and bonds -adding to a 401K -buying foreign bonds
adding to physical capital
The determinants of aggregate supply are variables that ______. -cause movement along the aggregate supply curve -cause quantity supplied to change -cause the aggregate supply curve to shift -solely change the price level
cause the aggregate supply curve to shift
A higher price level ____ the real value or purchasing power of the public's accumulated savings balances. Listen to the complete question
decreases
A decline in the price level is called ____
deflation
New and improved technologies will increase investment spending by ______. -creating excess capacity -reducing labor costs -enhancing expected return on investment -increasing cost of production
enhancing expected return on investment
In the long-run, output prices and input prices are ______. -self-correcting -flexible -fixed -unstable
flexible
In the short run, output prices are ____ and input prices are _____. -inflexible; flexible -flexible; inflexible -inflexible; inflexible -flexible; flexible
flexible; inflexible
Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being ____ than potential GDP.
greater
A higher than expected return on investment will ___ the demand for capital goods.
increase
A rise in consumer wealth will ______ consumer spending. -not affect -decrease -increase
increase
Aggregate demand will rise if consumers expect prices to ____ in the future.
increase
An increase in consumer wealth prompts consumers to decrease savings and ____ spending
increase
If firms are optimistic about future business conditions, investment will ____
increase
Investment spending and aggregate demand will ____ when excess capacity dwindles.
increase
New and improved technology, seen as investment spending by firms will lead to a(n) ____ in aggregate demand
increase
What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply? -foreign prices -input prices -consumption spending -output prices
input prices
When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect. -money -interest-rate -foreign purchases -real-balances
interest-rate
A decline in investment spending at each price level will shift the aggregate demand curve to the ____
left
The short-run is the period in which ______. -input prices are flexible but output prices are fixed or highly inflexible -output prices and input prices are fixed or highly inflexible -output prices and input prices are flexible -output prices are flexible but input prices are fixed or highly inflexible
output prices are flexible but input prices are fixed or highly inflexible
A leftward shift in the aggregate ____ curve leads to cost-push inflation.
supply
Businesses will invest less if: -there is an increase in excess capacity -there is a decrease in real interest rates -business taxes are reduced -they are pessimistic about future business conditions
they are pessimistic about future business conditions
What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels? -Exchange rate -Net exports -Aggregate supply -Aggregate demand
Aggregate supply
Aggregate supply is represented as a schedule or curve showing the relationship between a nation's ____ level (index) and the amount of real domestic output that firms in the economy produce.
price
Total output divided by total inputs is the formula for ____
productivity
What is one result of a decrease in aggregate demand? -Higher expected returns on investment -Recession -Full employment -Potential output is less than actual output
Recession
An input price is a(n) ______ price while an output price makes up the price level. -intermediate -resource -implicit -fixed
resource
Select all that apply Which of the following influence expected returns on investment projects? -Business taxes -Expectations about future business conditions -Total income -Household borrowing -Technology -Degree of excess capacity
Business taxes Expectations about future business conditions Technology Degree of excess capacity
____ spending will fall if firms' outlook on the economy is pessimistic.
Investment
Select all that apply Which of the following are the four components or determinants of aggregate demand? -Productivity -Investment spending -Resource prices -Net export spending -Government spending -Consumer spending
Investment spending Net export spending Government spending Consumer spending
True or false: Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.
True
True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.
True
True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices.
True
A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to ______. -a decline in firms' expected returns -an increase in the general price level -a decrease in long-term interest rates -an increase in firms' expected returns
a decline in firms' expected returns
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the quantity demanded for real GDP. -upward flexibility -a decrease -an increase -no change
a decrease
A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called -aggregate GDP. -aggregate supply. -aggregate demand. -demand.
aggregate demand.
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level. -an increase -a decrease -downward flexibility -no change
an increase
A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation -cost-push -cost-pull -demand-pull -demand-push
cost-push
If the government subsidizes the development of alternative energy it will _______. -increase the per-unit production costs and shift the aggregate supply curve to the right -have no effect on the per-unit production cost of the production -decrease the per-unit production costs and shift the aggregate supply curve to the left -decrease the per-unit production costs and shift the aggregate supply curve to the right
decrease the per-unit production costs and shift the aggregate supply curve to the right
A business subsidy will _____ production costs and ______ short run aggregate supply. -increase, increase -increase, decrease -decrease, increase -decrease, decrease
decrease, increase
An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation. -cost-push -quantitative -naturally-induced -demand-pull
demand-pull
When the US price level rises relative to foreign price levels, ______. -foreigners buy more US goods and Americans buy fewer foreign goods -foreigners buy more US goods and Americans buy more foreign goods -foreigners buy fewer US goods and Americans buy fewer foreign goods -foreigners buy fewer US goods and Americans buy more foreign goods
foreigners buy fewer US goods and Americans buy more foreign goods
A higher business tax will ______ per-unit costs and ______ short-run aggregate supply. -increase; increase -decrease; decrease -decrease; increase -increase; decrease
increase; decrease
The equilibrium price level and equilibrium output is determined by the ______. -intersection of the aggregate demand curve and the aggregate supply curve -point at which aggregate demand exceeds aggregate supply -point at which aggregate supply exceeds aggregate demand -intersection of the inflation rate and per-unit production cost
intersection of the aggregate demand curve and the aggregate supply curve
Wage increases shift the aggregate supply curve to the ____
left
A decrease in aggregate demand with constant aggregate supply can result in ______. -expansion -deflation -full employment -recession
recession
Changes in consumer spending, investment, government spending and net export spending will: -cause movement along the aggregate supply curve -shift the aggregate supply curve -cause movement along the aggregate demand curve -shift the aggregate demand curve
shift the aggregate demand curve
The intersection of the aggregate demand and aggregate supply curves determines ______. -the equilibrium real interest rate and equilibrium real GDP -the equilibrium price level and equilibrium real interest rate -the long-run equilibrium price level and real GDP -the equilibrium price level and equilibrium real GDP
the equilibrium price level and equilibrium real GDP
Assuming constant price levels, an initial drop in aggregate demand (AD) results in ______ being at full strength. -the multiplier -a recession -employment -the economy
the multiplier
How can the effect of an unexpected decline in asset values on aggregate demand best be described? -A decline in wealth prompts consumers to save less and spend less which shifts the aggregate demand curve to the right. -A decline in wealth prompts consumers to save more and spend more which shifts the aggregate demand curve to the left. -A decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left. -A decline in wealth prompts consumers to save less and spend more which shifts the aggregate demand curve to the right.
A decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left.
Which of the following explain the reasons for the downward slope of the aggregate demand curve? -A lower price level increases the demand for money and interest rates, assuming a fixed money supply. -A higher price level decreases the purchasing power of the publics' accumulated savings balances. -A higher price level increases the purchasing power of the publics' accumulated savings balances. -A higher price level decreases the demand for money and interest rates, assuming a fixed money supply.
A higher price level decreases the purchasing power of the publics' accumulated savings balances.
How is the real-balances effect defined? -A higher price level reduces the purchasing power of the public's accumulated savings balances. -A higher price level reduces the quantity of US goods demanded as net exports. -A higher price level increases the purchasing power of the public's accumulated savings balances. -A higher price level increases the demand for money and increases the interest rate.
A higher price level reduces the purchasing power of the public's accumulated savings balances.
Investment spending refers to purchases of which of the following? -Stocks -Mutual funds -Capital goods -Bonds
Capital goods
Select all that apply Select all of the following factors which can cause net exports to change. -Changes in interest rates -Changes in price level -Changes in national income abroad -Changes in exchange rates
Changes in price level Changes in national income abroad Changes in exchange rates
Select all that apply An increase in the price level results in which of the following effects? -Decrease in the level of consumption -Increase in net exports -Decrease in investments
Decrease in the level of consumption Decrease in investments
Select all that apply What happened to the U.S. economy in the 1990s? -Output fell by 5% annually. -Inflation grew by 5% annually. -GDP grew by 4% annually. -Unemployment fell to 4%.
GDP grew by 4% annually. Unemployment fell to 4%.
What is the result of an increase in the money supply? -Raised interest rate, increased investment and increased aggregate demand -Lower interest rate, increased investment and decreased aggregate demand -Lower interest rate, increased investment and increased aggregate demand -Raised interest rate, increased investment and decreased aggregate demand
Lower interest rate, increased investment and increased aggregate demand
Which of the following enhance the expected returns on investment and thus increase aggregate demand? -An increase in excess capacity -A lower price level -Higher interest rates -An increase in corporate taxes -New and improved technology
New and improved technology
____ is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.
Productivity
Select all that apply Select all the choices that explain what happens with rising price levels. -Consumption spending increases. -Purchasing power drops. -People demand less output. -Real balances drop.
Purchasing power drops. People demand less output. Real balances drop.
Select all that apply Select all the choices that explain what happens with dropping price levels. -Real balances rise. -People demand more output. -Purchasing power drops. -Real balances drop.
Real balances rise. People demand more output.
What will a decrease in US net exports do? -Shift the aggregate demand curve leftward -Shift the aggregate demand curve rightward -Shift the aggregate supply curve rightward -Shift the aggregate supply curve leftward
Shift the aggregate demand curve leftward
What will a rise in net exports do? -Shift the aggregate demand curve to the left -Shift the aggregate supply curve to the right -Shift the aggregate demand curve to the right -Shift the aggregate supply curve to the left
Shift the aggregate demand curve to the right
Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports? -The level of consumption increases, investment decreases, and net exports decrease. -The level of consumption increases, investment increases, and net exports increase. -The level of consumption increases, investment decreases, and net exports increase. -The level of consumption decreases, investment decreases, and net exports decrease.
The level of consumption increases, investment increases, and net exports increase.
An increase in productivity is related to ______. -a reduction in per-unit costs -a decline in efficiency -a shift of the aggregate supply curve to the left -a flattening of the aggregate supply curve
a reduction in per-unit costs
The wealth effect is reflected by ______. -the downward slope of the aggregate demand curve -a rightward shift of the aggregate demand curve -the increases in interest rate to savers -the upward slope of the aggregate demand curve
a rightward shift of the aggregate demand curve
If consumers expect inflation in the near future, consumers will want to buy more products now and ______. -aggregate supply will increase -aggregate demand will increase -aggregate demand will decrease -aggregate supply will decrease
aggregate demand will increase
A wage decrease shifts the ______. -aggregate supply curve to the left -aggregate demand curve to the left -aggregate supply curve to the right -aggregate demand curve to the right
aggregate supply curve to the right
When firms realize that their excess capacity is shrinking, investment spending ______. -will increase, but aggregate demand (AD) will decrease -and aggregate demand (AD) will increase -will decrease, but aggregate demand (AD) will increase -and aggregate demand (AD) will decrease
and aggregate demand (AD) will increase
Consumer wealth is defined as the total value of ______. -total assets -all investments plus the money in the bank minus debt -assets minus the total value of liabilities -all investments plus the money in the bank
assets minus the total value of liabilities
When interest rates are higher, businesses and consumers will: -increase investment spending and interest-sensitive consumption spending. -increase investment spending and decrease interest-sensitive consumption spending. -decrease investment spending and increase interest-sensitive consumption spending. -decrease investment spending and interest-sensitive consumption spending.
decrease investment spending and interest-sensitive consumption spending.
A wage decrease will ____ per-unit production costs and shift the aggregate supply (AS) curve to the ____
decrease, right
An increase in real interest rates will ______ investment spending and ______ borrowing costs. -increase; decrease -decrease; decrease -increase; increase -decrease; increase
decrease; increase
Cyclical unemployment and recession often arise from ____ in aggregate demand.
decreases
If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______. -increases; left -increases; right -decreases; left -decreases; right
decreases; left
Aggregate ____ is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.
demand
A decrease in investment spending at each price level will shift the aggregate ______. -supply curve to the right -demand curve to the left -supply curve to the left -demand curve to the right
demand curve to the left
The interest rate effect causes the aggregate demand to be ______. -vertical -upward sloping -downward sloping -flat
downward sloping
An increase in productivity ______. -enables more output with limited resources -has no effect on output -enables more output only if more resources are added -decreases output
enables more output with limited resources
Technological advancements will ______ expected returns on investment and ______ aggregate demand. -enhance; increase -decrease; enhance -enhance; decrease -decrease; decrease
enhance; increase
When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______. -fall; rise -rise; fall -fall; fall -rise; rise
fall; rise
If firms are optimistic about the business outlook, investment will ______ and the investment demand curve shifts _____. -decrease; rightward -increase; leftward -decrease; leftward -increase; rightward
increase; rightward
The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______. -decreases money demand which decreases interest rates and decreases the amount of real GDP -increases money demand which decreases interest rates and decreases the amount of real GDP -increases money demand which increases interest rates and increases the amount of real GDP -increases money demand which increases interest rates and decreases the amount of real GDP
increases money demand which increases interest rates and decreases the amount of real GDP
If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______. -increases; right -increases; left -decreases; right -decreases; left
increases; right
In the immediate short run ______. -input prices and output prices can vary -input prices and output prices are fixed -input prices are fixed and output prices can vary -output prices are fixed and output prices can vary
input prices and output prices are fixed
In the short run _____. -input prices and output prices can vary -input prices are fixed and output prices can vary -input prices and output prices are fixed -output prices are fixed and input prices can vary
input prices are fixed and output prices can vary
Investment spending depends on the real ____ rate and the expected return from ____
interest investment
If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the _____
left
If consumers increase their saving rate in order to pay off their debts the aggregate demand (AD) curve will shift to the ____
left
The aggregate demand curve will shift to the ____ when there is a reduction in government purchases.
left
Input prices and output prices are flexible in the ____ run
long
An increase in the money supply will ______ the interest rate, increase investment and ______ aggregate demand. -lower; decrease -lower; increase -raise; increase -raise; decrease
lower; increase
Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______. -not change; interest rate -raise; discount rate -lower; interest rate -lower; discount rate -raise; interest rate
raise; interest rate
Productivity is the measure of the relationship between a nation's level of ______. -nominal output and the amount of resources used to produce that output -nominal output and the amount of labor used to produce that output -real output and the amount of resources used to produce that output -real output and the amount of labor used to produce that output
real output and the amount of resources used to produce that output
The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances. -international-trade effect -price-level effect -interest-rate effect -real-balances effect
real-balances effect
An increase in exports relative to imports will shift the aggregate demand (AD) curve to the ____
right
If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the ____
right
A decline in investment spending at each price level will ______. -shift the aggregate demand curve to the right -shift the aggregate supply curve to the right -shift the aggregate demand curve to the left -shift the aggregate supply curve to the left
shift the aggregate demand curve to the left
An increase in government spending is likely to _____. -have no effect on the aggregate demand curve -shift the aggregate demand curve to the right -move the aggregate supply curve to the left -shift the aggregate demand curve to the left
shift the aggregate demand curve to the right
An increase in investment spending at each price level will ______. -shift the aggregate demand curve to the left -shift the aggregate supply curve to the right -shift the aggregate supply curve to the left -shift the aggregate demand curve to the right
shift the aggregate demand curve to the right
When consumers increase their consumption spending by borrowing, the aggregate demand curve ______. -shifts to the left -does not change -becomes horizontal -shifts to the right
shifts to the right
The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______. -taxes and productivity -subsidies and prices of imported resources -taxes and government regulations -input prices and productivity
taxes and government regulations
Productivity can be illustrated in the formula ______. -total output divided by total labor -total inputs divided by total output -total output divided by total inputs -total labor divided by total output
total output divided by total inputs
The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies ______. -seldom change output levels or price levels -must change output levels before they change price levels -must change price levels before they change output levels -typically change price levels and output levels simultaneously
typically change price levels and output levels simultaneously
An unexpected increase in asset values that results in an increase in consumer spending is called the ____ effect
wealth
The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer ____
wealth