Quiz 9: Modules 30-33

The _____ curve shows the negative relationship between the aggregate price level and the quantity of aggregate output demanded in the economy.

aggregate demand

Raising taxes shifts the:

aggregate demand curve to the left.

An increase in government spending on health care is likely to shift the:

aggregate demand curve to the right.

(Figure: Macroeconomic Equilibrium) In the accompanying figure, curve 1 refers to _____, curve 2 refers to _____, and curve 3 refers to _____.

aggregate demand; long-run aggregate supply; short-run aggregate supply

(Figure: Inflationary and Recessionary Gaps) In Panel (a), the intersection of SRAS with AD indicates:

an economy experiencing a recessionary gap

Which of the following will shift the short-run aggregate supply curve to the right?

an economy-wide decrease in commodity prices

A rise in labor productivity is most likely to result in:

an increase in aggregate supply

(Figure: Shift of the Aggregate Demand Curve) A movement from point B on AD1 to point E on AD2 could have been the result of :

an increase in consumer optimism.

The economy is in a recession. Which of the following is a fiscal policy that the government should adopt to strengthen the economy?

an increase in government purchases of goods and services.

(Figure: Shift of the Aggregate Demand Curve) A movement from AD1 to AD2 may have been the result of:

an increase in government spending

Which of the following would shift the aggregate demand curve to the left?

an increase in the interest rate.

Which of the following would likely cause the short-run aggregate supply curve to shift to the left?

an increase in the price of imported oil

Stagflation may result from:

an increase in the price of imported oil.

An increase in investment leads to _______ in the price level and _______ in real GDP in the short run.

an increase; an increase

The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

consumption and investment.

(Figure: AD-AS Model I) If the economy is at point X, the appropriate fiscal policy is to:

decrease taxes and increase government spending

A decrease in the supply of money shifts the aggregate:

demand curve to the left

A recessionary gap will be eliminated because there is _______ pressure on wages, causing the _______.

downward; short-run aggregate supply curve to shift rightward

A recessionary gap can be closed with:

expansionary fiscal policy

An increase in government transfers is considered to be an example of ________ because it ________.

expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing aggregate output

If the government lowers taxes in response to a recession, the government is engaging in what economists call:

fiscal policy.

Consumer spending will rise if:

government transfers rise.

Nominal wages are "sticky" because:

in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.

The short run in macroeconomic analysis is a period:

in which many production costs can be taken as fixed.

As a result of a decrease in the value of the dollar in relation to other currencies, American imports decrease and exports increase. Consequently, there is a(n):

increase in aggregate demand.

(Figure: AD-AS Model I) If the economy is at point X, the appropriate monetary policy is to:

increase the money supply and decrease interest rates

In the long run (as the economy self-corrects), an increase in aggregate demand will cause the price level to _______ and potential output to _______.

increase; remain stable

(Figure: Inflationary and Recessionary Gaps II) The movement from AD3 to AD1 would be caused by:

increased taxes.

A cut in taxes ________, therefore shifting the aggregate demand curve to the ________.

increases disposable income and consumption; right

Expansionary fiscal policy includes:

increasing government expenditures.

Contractionary fiscal policy includes:

increasing taxes.

Aggregate demand will increase in all of the following cases except if:

interest rates increase

(Figure: Inflationary and Recessionary Gaps) In Panel (b), the level of real GDP represented by Yp

is potential output for this economy.

The aggregate demand curve would shift to the left for all the following reasons EXCEPT:

lower labor productivity.

(Figure: Policy Alternatives) Assume that the economy depicted in Panel (a) is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:

lower wages will result in a gradual shift from SRAS1 to SRAS2

A natural disaster that destroys part of a country's infrastructure is a type of _________ and therefore shifts the _________ to the _________.

negative supply shock; short-run aggregate supply curve; left

In the long run, the aggregate price level has:

no effect on the quantity of aggregate output.

The intersection of the economy's aggregate demand and long-run aggregate supply curves:

occurs at the economy's potential output.

(Figure: Policy Alternatives) Assume that the economy depicted in Panel (a) is in short-run equilibrium at a real GDP level of Y1. Doing nothing and letting the economy correct itself.

occurs in the long run when wages fall.

An improvement in the business outlook of firms is a type of _________ and therefore shifts the _________ to the _________.

positive demand shock; aggregate demand curve; right

The level of output in the long run is known as:

potential output

The short-run aggregate supply curve may shift to the right if:

productivity increases

An increase in aggregate demand is seen as a(n):

shift to the right in the aggregate demand curve.

If nominal wages fall, then short-run aggregate:

supply shifts to the right.

(Figure: AD-AS Model II) If the central bank causes a significant decrease in the quantity of money that is circulating in the economy, then which of the following will take place?

AD curve will shift to the left

(Figure: AD-AS Model II) When firms decrease their investment spending, which of the following will take place in the short run?

AD curve will shift to the left

(Figure: AD-AS Model II) If the value of household wealth increases, which of the following will take place?

AD curve will shift to the right

(Figure: AD-AS Model II) If there is a significant increase in government spending, which of the following will take place in the short run?

AD curve will shift to the right

The basic equation of national income accounting shows: GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

C

A negative supply shock raises the production costs and increases the quantity producers are willing to supply at any given price level.

False

Stagflation is the combination of inflation and rising aggregate output.

False

When the economy experiences stagflation, the price level is falling.

False

Potential output is:

the level of real GDP that the economy would produce if all prices, including nominal wages, were fully flexible.

The aggregate demand curve is negatively sloped in part because of the impact of:

the wealth effect on consumption.

The short-run aggregate supply curve is:

upward sloping.

An inflationary gap will be eliminated because there is _______ pressure on wages, causing the _______.

upward; short-run aggregate supply curve to shift to the left.

Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:

vertical

(Figure: Shifts of the AD-AS Curves) In the short run, an increase in net exports is illustrated by:

Panel (a)

(Figure: Shifts of the AD-AS Curves) In the short run, a decrease in wages is illustrated by:

Panel (c)

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

SRAS and aggregate demand.

(Figure: AD-AS Model II) If nominal wages decrease, which of the following will take place in the short run?

SRAS curve will shift to the right

(Figure: AD-AS Model II) If productivity increases, which of the following will take place?

SRAS curve will shift to the right

Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:

The SRAS curve

Suppose that the U.S. government doubles its spending on health care. Which of the following is most likely to occur?

The aggregate demand curve shifts right, output increases, and prices increase.

Suppose that political instability in the Middle East temporarily interrupts the supply of oil to the United States. Which of the following is most likely to occur?

The short-run aggregate supply curve shifts left, output decreases, and prices increase.

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

True

(Figure: Short-Run Equilibrium) The accompanying graph reflects a short run inflationary gap. Using the labeling on the graph, the size of the inflationary gap is equal to:

Y1-Yp

An inflationary gap can be closed with:

a decrease in government purchases.

(Figure: Shift of the Aggregate Demand Curve) A movement from point C on AD2 to point A on AD1 may have been the result of :

a decrease in investment due to pessimistic GDP forecasts.

(Figure: Short-Run Equilibrium) The accompanying graph shows the current short-run equilibrium in the economy. Appropriate fiscal policy action in this situation would be:

a decrease in transfer payments.

The SRAS curve is upward rising because:

a higher aggregate price level leads to higher output since most production costs are fixed in the short run.