macroeconomics

A country's rate of economic growth is important because

an economy that grows too slowly fails to raise the living standards of its citizens

Causes SRAS curve to shift to the left

an increase in the expected price of an important natural resource

A faster income growth in other countries will cause a ______ the U.S. aggregate demand curve.

rightward shift of

An increase in govt purchase will cause a ______ the aggregate demand curve.

rightward shift of

Menu costs are

the cost to firms of changing prices.

The position of the long-run aggregate supply curve is determined by

the number of workers, the amount of capital, and the available technology

The aggregate demand curve shows the relationship between

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

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

When examining economic growth rates throughout history,

the world experienced little to no growth until the industrial revolution, after which some economies began to experience real economic growth

Increases in households' expectations of their future incomes will make the aggregate demand curve shift

to the right

If menu costs were eliminated, the short-run aggregate supply curve will be __________ because of _________.

upward sloping; wage price stickiness and slow wage adjustment by firms

Would lead to a reduction in real GDP and may even cause a recession

An increase an oil price that causes short-run supply to fall

Would cause a decrease in real GDP, and if large enough, a recession

An increase in interest rates that causes aggregate demand to fall

Why does the short-run aggregate supply curve slope upward?

Profits rise when the prices of goods and services firms sell more rapidly than the prices they pay for inputs

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 would cause a decrease in aggregate demand?

a decrease in govt spending

Causes the short-run aggregate supply curve to shift to the right

a positive technological change

If the economy adjusts through 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

The long-run aggregate supply curve is vertical because in the long run,

changes in the price level do not effect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.

Four components of aggregate demand

consumption, investment, government expenditures and net exports

The widespread use of computers and Internet has _______ menu costs.

decreased

The new growth theory states that

firms will add to an economy's stock of knowledge capital by engaging in research and development or by contributing to technological change.

NOT true when the economy is in macroeconomic equillibrium

firms will have excess capacity

Aggregate demand is comprised of expenditure components that include:

govt 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 investments

The short-run aggregate supply curve slopes upward because of all of the following reason except

in the short run, an unexpected change in the price of an important resource can change the cost to firms

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

At the macro-economy level,

knowledge capital exhibits increasing returns returns and physical capital exhibits decreasing returns

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

leftward shift of

An increase in state income taxes will cause a ______ the aggregate demand curve.

leftward shift of

Compounding

magnifies even small differences in interest rates or growth rates over long periods of time.

Why does the failure of workers and firms to accurately predict the price level result in an upward-sloping aggregate supply curve?

menu costs and contracts become "sticky" firms are often slow to adjust wages

Technological change is _______ for economic growth than additional capital.

more important

A change in the price level will cause the long-run aggregate supply curve to

move along a stationary LRAS curve.

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

movement up along

The wealth effect refers to the fact that

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