Aggregate Demand and Supply

A negative supply shock shifts the aggregate supply to the _____

left

Cost-push inflation occurs as an increase in resource costs shifts aggregate supply to the _____

left

If the government decreases the amount of spending, aggregate demand shifts to the _____

left

When incomes decrease in foreign countries, foreigners may be _____ (less/more) willing and able to purchase goods and services produced in the United States.

less

Government policies, natural disasters, and a variety of other events can shift the aggregate supply and demand curves moving the economy away from its _____ -run full-employment level of real GDP.

long

The _____-run aggregate supply curve is a vertical line originating at the full-employment level of real GDP.

long

In the long run, the equilibrium price level is determined by the intersection of the _____ -run aggregate supply curve and the aggregate _____ curve

long, demand

In the long run, the equilibrium price level is determined by the intersection of the _____-run aggregate supply curve and the aggregate _____ curve.

long, demand

In the long run, the equilibrium price level is determined by the intersection of the:

long-run aggregate supply curve and the aggregate demand curve.

Full-employment real GDP is often used to describe:

long-run aggregate supply.

The natural rate of real GDP is often used to describe:

long-run aggregate supply.

If the economy is producing above equilibrium, unemployment is very:

low, wages will start to rise, which puts upward pressure on prices.

The supply curve for an individual good or service is upward-sloping because:

marginal costs are increasing.

Demand-pull inflation occurs as consumers compete with each other for goods and services shifting aggregate demand to the _____

right

If the government increases the amount of spending, aggregate demand shifts to the _____

right

As nominal wages and the costs of other resources _____ during an expansion, aggregate supply shifts to the left.

rise

If resource costs _____, output decreases at every price level.

rise

A shock to aggregate supply that affect the economy in a negative way include:

rising oil prices

Changing one of the determinants of aggregate supply will cause the aggregate supply curve to _____

shift

If consumption gross investment or net exports are increasing because of some non-price change, there will be a:

shift of the AD curve.

If consumption, gross investment ,or net exports are increasing because of some non-price change, there will be a:

shift of the AD curve.

If net exports are increasing because of some non-price change, there will be a:

shift of the AD curve.

If consumption or gross investment increase for any reason other than the price level, that's a:

shift of the aggregate demand.

Supply shocks cause a _____ the aggregate supply curve.

shift of; movement along

Supply shocks cause a(n) _____ the aggregate supply curve.

shift of; movement along

Increased government spending spurs a short-run expansion. Over time, aggregate supply eventually __________, returning the economy to the full-employment level of output. In this new long-run equilibrium, the distribution of _________ in the economy changes.

shifts to the left; output and resources

In the _____ run, the aggregate supply curve slopes upward.

short

The relationship between the price level and the amount of real GDP supplied in the economy is called:

short-run aggregate supply. aggregate supply.

Formal rules like minimum wage laws, insurance requirements, and worker safety requirements are examples of _____ institutions that influence the aggregate _____

social; supply

Before the 1970s, rising inflation and unemployment called _____ was unknown in the U.S.

stagflation

The term _____ was coined in the 1970s during a period of high unemployment in the United States.

stagflation

_____ is a combination of the words stagnation and inflation.

stagflation

A negative shock causes aggregate _____ to fall at every price level.

supply

Aggregate _____ illustrates how the total amount of goods and services produced in an economy relates to the price level.

supply

Generally changes to social institutions that inhibit production decrease aggregate:

supply

If aggregate demand shifts in the short run, aggregate _____ will eventually shift in the long run to bring the economy back to full employment.

supply

In the classical model of aggregate demand and aggregate supply, it is aggregate _____ that adjusts in the long run to return the economy to its long run equilibrium.

supply

Inflation that results from a decrease in aggregate _____ is called cost-push inflation.

supply

It doesn't matter what kind of shock an economy experiences, in the standard aggregate demand and aggregate supply model all long-run adjustments are made through changes in aggregate_____

supply

The aggregate _____ curve slopes upward in the short run because input prices are sticky and take time to adjust.

supply

The aggregate _____ shocks of the 70s caused by oil embargoes and domestic economic policies drove both inflation and unemployment higher.

supply

The determination of the the long-run equilibrium price level and real GDP is found by using:

the long-run aggregate supply curve.

The inflation rate refers to:

the percentage increase in the overall price of goods and services in the economy from one time period to another.

The unemployment rate refers to:

the percentage of workers in the labor force who are unemployed; a good indicator of the overall health of the economy.

If we increase our resources or productivity,:

the production possibilities frontier will shift out; the long-run aggregate supply curve shifts to the right

The long-run aggregate supply curve is a(n) _____ line originating at the full-employment level of real GDP.

vertical

Appreciation (of currency)

An increase in the value, or price, of one currency relative to another.

Saving is important for long-run growth: When households save that money is available for:

firms to borrow for investment; that borrowing leads to more capital and higher production in the future.

In the short run, input prices are _____ and do not adjust along with other prices in the economy.

fixed

The aggregate supply curve slopes upward in the short run because input prices are _____ and take time to adjust

fixed

Economic contraction can be shown as:

an inward shift of the production possibilities frontier. the long-run aggregate supply curve shifts to the left.

When the dollar _____ , (appreciates/depreciates) foreign goods and services become cheaper to U.S. consumers and _____ (imports/exports) rise.

appreciates, imports

The argument can be made that demand-pull inflation is better than cost-push inflation because with:

demand-pull inflation there is a positive relationship between output and inflation.

The long-run aggregate supply curve is a vertical line originating at the _____ -employment level of real GDP.

full

The aggregate supply shocks of the 70s caused by oil embargoes and domestic economic policies drove both inflation and unemployment _____

higher

_____ (Higher, Lower) U.S. incomes tend to increase U.S. imports and reduce net exports.

higher

If the short-run aggregate supply curve and the aggregate demand curve intersect at the full employment level of output the economy:

is in its short and long run equilibrium.

What might lead to an expansion in the business cycle?

An increase in SRAS

Which of the following will increase the aggregate demand curve?

An increase in investment. An increase in consumption spending.

According to the Phillips curve relationship, an increase in unemployment is coupled with:

A decrease in the inflation rate

Indicate the likely effect of a wide-reaching increase in wages paid to workers on the AD-AS model.

Aggregate supply decreases

Increased government spending spurs a short-run expansion. Over time, aggregate supply eventually shifts to the left, returning the economy to the full-employment level of output.

In this new long-run equilibrium, the distribution of output and resources in the economy changes.

Which of the following events can shift the aggregate supply curve and the aggregate demand curve, moving the economy away from its full-employment level of real GDP?

Natural disasters Government policies

The downward-sloping line that represents the negative or inverse relationship between the rate of inflation and the unemployment rate in the short run is called the _____ curve

Phillip's

Which of the following are the three broad categories of the determinants of aggregate supply?

Productivity, Resource prices, Social institutions

Real GDP Expenditures

Real GDP (Y) = Consumption (C) + Gross Investment (I) + Government Purchases (G) + Net Exports (NX)

Short-run equilibrium occurs where ______ and _____ intersect.

SRAS; AD

Quantity of Real GDP Demanded

The aggregate quantity of output (real GDP) demanded at a given price level. Sometimes referred to simply as output.

Suppose there is an economy-wide decrease in business taxes. What can we expect to see in the business cycle model?

The business cycle enters an expansion.

The pressure on prices and nominal wages that results when an economy produces beyond its full-employment level of output is called:

an inflationary gap.

Equilibrium in the aggregate demand and supply model consists of:

a price level and a quantity of real GDP.

Suppose there is a positive supply shock. In the short-run, the economy moves to a new equilibrium where real GDP is:

above the full-employment level and unemployment is lower than the natural rate.

In the short run, when there is a positive supply shock, real GDP lies _____ the full-employment level and unemployment is _____ than the natural rate.

above, lower

The _____ demand and supply model can be used to describe changes in an economy's price level and real GDP in the short and the long run.

aggregate

The determination of the the long-run equilibrium price level and real GDP is found by using the long-run _____ supply curve

aggregate

_____ demand describes the overall or total demand for all final goods and services produced in an economy.

aggregate

Along the short-run aggregate supply curve

as price level increases, the level of real GDP supplied also increases

There is a(n) _____ correction mechanism in our economy which operates through the aggregate supply.

automatic

When there is a negative demand shock, real GDP lies _____ the full-employment level and unemployment is _____ than the natural rate.

below, higher

A decrease in aggregate demand:

causes a movement down along the Phillips Curve.

Inflation that results from a decrease in aggregate supply is called _____ _____ inflation.

cost push

Holding the price level constant, an increase in net exports causes aggregate _____ to shift to the _____

demand, right

A(n) _____ in investment will shift the AE line downward and shift the AD curve to the left.

decrease

Exports from the U.S. will tend to _____ when foreign incomes decrease.

decrease

When the dollar depreciates, foreign goods and services become more expensive to U.S. consumers and imports

decrease

When the dollar depreciates, foreign goods and services become more expensive to U.S. consumers and imports _____

decrease

Holding the price level constant, a(n) _____ in net exports reduces the aggregate _____ for real GDP

decrease, demand

If consumers _____ the amount of goods and services they purchase, given constant prices, then aggregate _____ for real GDP decreases.

decrease, demand

Lower U.S. incomes tend to _____ (increase/decrease) U.S. imports and _____ (increase/decrease) net exports.

decrease, increase

In the short run, the price level decreases. Firms hire fewer workers and _____ production. The quantity of real GDP decreases. As the demand for labor decreases and labor contracts expire, workers will accept lower wages. In the _____ run, output falls.

decrease; long

According to the real-balances effect, when the price level rises the real value of savings _____ (increases/decreases) and people are _____ (less/more) willing or able to buy goods and services.

decreases, less

Increasing government purchases or decreasing taxes does have a downside in the form of a higher budget _____ , but it can also lessen the severity of the _____

deficit, recession

A decrease in consumer confidence causes aggregate _____ to fall

demand

Changes in government purchases and net exports directly affect the aggregate _____ for real GDP

demand

Until the 1970s, most fluctuations in unemployment and inflation were due to changes in aggregate _____

demand

The two main sources of inflation are _____-pull and _____-push which both result in a higher price level.

demand, cost

If _____-pull inflation is occurring, it is because the aggregate _____ curve is shifting to the _____ resulting in higher output and higher prices.

demand, demand, right

When the dollar _____ (appreciates/depreciates), foreign goods and services become more expensive to U.S. consumers and _____ (imports/exports) fall.

depreciates, imports

If the purchasing power of the U.S. dollar falls relative to other currencies, it is known as a(n) _____ of the U.S. dollar.

depreciation

Consider nominal or money wages for example. Wages tend to be stickier moving _____-ward than _____-ward

down, up

Some of the challenges of using government expenditures to stimulate the economy are that:

eventually spending will need to be cut, leading to recession. increasing government expenditures can increase the deficit.

The aggregate demand and supply model can be used to explain the business cycle. An initial increase in aggregate demand will cause the economy to ____. Then over time as input prices _____, the aggregate supply curve shifts to the left the economy is enters the contraction phase of the business cycle.

expand; increase

A decrease in consumer confidence causes aggregate demand to _____

fall

When the price level _____ in the short run, output will contract because profit margins decrease.

falls

A(n) _____ in resource costs will shift the aggregate supply curve to the left.

increase

Cost-push inflation occurs as a(n) _____ in resource costs shifts aggregate supply to the left.

increase

Inflation that results from a(n) _____ in aggregate demand is called demand-pull inflation.

increase

Recessions and expansions can cause inflation or a general _____ in the level of prices.

increase

When the price level increases in the short run, output will expand because profit margins _____

increase

Suppose that a decrease in personal income taxes causes aggregate demand to _____ so that the economy moves to a new short-run equilibrium. In this _____ phase of the business cycle, real GDP increases. The economy will reach a peak, or the highest point tin the business cycle. Over time, as nominal wages and costs of other resources rise, the economy begins to recover. Aggregate supply shifts to the _____ _ so that output contracts and the price level rises. Eventually, the economy moves to a new ______-run equilibrium at a higher price level and full-employment output. (Enter one word in each blank.)

increase, expansion, left, long

If consumers _____ the amount of goods and services they purchase given constant prices then aggregate _____ shifts to the right since more goods and services are being purchased at every _____ level

increase, raise, demand

In the short run, a shift of the aggregate supply curve to the right indicates _____ production at every price level.

increased

Increases in productivity mean _____ output or real GDP can be produced at every price level.

increased

If the government _____ the amount of spending, aggregate demand shifts to the right.

increases

When aggregate demand _____ , there is higher inflation and lower unemployment.

increases

Both recessions and expansions can cause _____ or a general increase in the level of prices.

inflation

When an economy produces beyond potential real GDP, it can lead to:

inflation

Stagflation is used to describe an economy that is not growing, but has rising _____ together with high _____

inflation, unemployment

When aggregate demand increases, there is higher _____ and lower _____

inflation, unemployment

Suppose the full-employment level of real GDP is $12 trillion and the economy is actually producing $13 trillion. In this case, the economy is in a(n) _____ gap

inflationary

When incomes increase in foreign countries, foreigners may be _____ willing and able to purchase goods and services produced in the United States.

more

If net exports are increasing because of the lower price level, there will be a:

movement along the AD curve.

If firms are producing more output because of the higher price level, there will be a:

movement along the AS curve.

A(n) _____ shock causes aggregate demand or supply to fall at every price level.

negative

Stagflation is caused by _____ shocks such as rising input costs that shift aggregate supply to the left.

negative

As _____ wages and the costs of other resources fall during a recession, aggregate supply shifts to the right.

nominal

The fact that _____ wages are sticky _____-ward means the government has a stronger incentive to intervene in the economy in a(n) _____

nominal, down, recession

As wages rise, firms cut back production in the long run and _____ falls

output

A movement along the aggregate supply curve is due to a change in the _____ level

price

Aggregate supply illustrates how the total amount of goods and services produced in an economy relates to the _____ level

price

In the short run, an increase in the _____ level will increase the quantity of real GDP supplied.

price

When we draw an aggregate demand curve we're assuming that the only thing that is changing as we move up and down the curve is the _____ level

price

Input _____ tend to be sticky.

prices

_____ is defined as the total amount of output produced with a given level of inputs.

productivity

Government _____ refer only to those payments made by the government for final goods and services that it consumes.

purchases

The aggregate demand and supply model can be used to explain the business cycle. An initial decrease in aggregate demand will cause the economy to go into ____. Over time, as input prices decrease the aggregate supply curve shifts to the right and the economy enters the _______ phase of the business cycle.

recession; recovery

Resource prices tend to adjust slowly in response to changes in the market. Another way to state this is to say that

resource prices are sticky.

Suppose that the government increases paperwork and raises fees for starting a business. This will cause aggregate:

supply to decrease, shifting to the left.

Suppose that the the price of oil falls worldwide. This will cause aggregate:

supply to increase shifting to the right.

The long-run equilibrium occurs where:

the AD and AS and LRAS curves intersect.

The short-run equilibrium occurs where:

the AD and AS curves intersect.

As nominal wages and the costs of other resources fall during a recession,:

the aggregate supply curve shifts to the right real output grows and the price level falls further.

The Phillips Curve refers to:

the downward-sloping line that represents the negative or inverse relationship between the rate of inflation and the unemployment rate in the short run.

The percentage of workers in the labor force who are unemployed, a good indicator of the overall health of the economy, is called:

the unemployment rate.

This percentage increase in the overall price of goods and services in the economy from one time period to another is called:

the unemployment rate.

The aggregate demand and supply model can be used:

to describe changes in an economy's price level and real GDP in the short and the long run.

The short-run equilibrium level of real GDP is not necessarily the full-employment level of output that is consistent with the long run. (True or False)

true

The term stagflation was coined in the 1970s during a period of high _____ in the United States.

unemployment

A(n) _____-ward shift of aggregate supply causes prices to rise with unemployment.

up

In the short run, the aggregate supply curve slopes _____

upward

The short-run aggregate supply curve slopes _____ because input prices are sticky.

upward

In in the aggregate demand and supply model, the the price level is on the _____ axis of the graph and real GDP is on the _____ axis

y, x

Recession

A decline in real output for at least two consecutive quarters.

Short-Run Equilibrium

A short-run situation in which the aggregate quantity of real GDP demanded is equal to the aggregate quantity of real GDP supplied. Graphically, short-run equilibrium occurs where the aggregate demand and aggregate supply curves intersect.

Exchange Rate

The rate, or price, at which one currency can be exchanged for another.

If consumers _____ the amount of spending, aggregate demand shifts to the right.

increase

Assume an economy starts out in equilibrium. When the price level falls: (Place the impacts listed below in the proper order.)

1. The purchasing power of assets such as saving stocks and bonds increases 2. Firms and consumers can purchase more goods and services 3. The aggregate expenditure in the economy increasesThe substitution effect for an individual good is similar to the:

Negative Shock to Aggregate Demand

A change to one of the determinants of aggregate demand that causes a decrease in the aggregate quantity of real GDP demanded at every price level. Graphically, a negative shock is represented by a leftward shift of the aggregate demand curve.

Positive Shock to Aggregate Demand

A change to one of the determinants of aggregate demand that causes an increase in the aggregate quantity of real GDP demanded at every price level. Graphically, a positive shock is represented by a rightward shift of the aggregate demand curve.

Negative Shock to Aggregate Supply

A change to one of the determinants of aggregate supply that causes a decrease in the aggregate quantity of real GDP supplied at every price level. Graphically, a negative shock is represented by a leftward shift of the aggregate supply curve.

Positive Shock to Aggregate Supply

A change to one of the determinants of aggregate supply that causes an increase in the aggregate quantity of real GDP supplied at every price level. Graphically, a positive shock is represented by a rightward shift of the aggregate supply curve.

Decrease in Aggregate Demand

A decrease in the quantity of real GDP demanded in the economy at every price level; graphically, a decrease in aggregate demand is represented by a leftward shift of the aggregate demand curve. (downsloping graph)1

Depreciation (of currency)

A decrease in the value, or price, of one currency relative to another.

Inflation

A general increase in prices of goods and services.

Depression

A long-lasting and severe recession

Long-Run Equilibrium

A market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit. Generally, it occurs when the market price is equal to the minimum average total cost faced by firms.

Expansion

A phase of the business cycle characterized by increasing real GDP, income, and employment.

Peak

A point in the business cycle where real GDP reaches a maximum. The peak marks the end of an expansion.

Aggregate Demand (AD)

A schedule or curve that represents the relationship between the quantity of real GDP demanded in the economy and the price level, all else held constant.

Aggregate Supply (AS)

A schedule or curve that represents the relationship between the quantity of real GDP supplied in the economy and the price level. Also called short-run aggregate supply.

Sticky Wages

A situation where wages do not adjust in the short run. If wages are sticky downward, workers are reluctant to accept a decrease in their wages, creating a flat labor supply curve at the current wage.

Aggregate Expenditures Model

AE = C + I + G + NX C = A + [MPC X (Y-T)]

Aggregate Expenditures Equilibrium Identity (Equilibrium Line)

AE = Y

AD/AS in Equilibrium Graph

AS upward, AD downslope, make an X with LRAS vertical where the 2 meet

______ determine(s) the level of real GDP.

Aggregate expenditures

Consumption (C)

All expenditures made by households on goods and services, like clothing, food, electronics, and recreation, during a given time period.

Government Purchases (G)

All final goods purchased by federal, state, and local governments—such as tanks, police cars, fire engines, and office supplies—during a given time period, as well as all final services purchased from labor resources—such as airport security personnel, police officers, and teachers.

Increase in Aggregate Demand

An increase in the quantity of real GDP demanded in the economy at every price level; graphically, an increase in aggregate demand is represented by a rightward shift of the aggregate demand curve. (downsloping graph)

Aggregate demand relates the price level to real _____

GDP

Cost-Push Inflation

Inflation that occurs due to a decrease in aggregate supply.

Demand-Pull Inflation

Inflation that occurs due to an increase in aggregate demand.

Stagflation

Inflation that occurs when an economy experiences both rising unemployment (a stagnating economy) and rising prices (inflation).

Net Exports

NX = Exports (X) - Imports (M)

Interest-Rate Effect

One of the three reasons that aggregate demand is downward-sloping: When the price level rises, the demand for money increases, which causes interest rates to rise, resulting in a decrease in investment and consumption spending, thus reducing the aggregate quantity of real GDP demanded.

Foreign Purchases Effect

One of the three reasons that aggregate demand is downward-sloping: When the price level rises, the quantity of exports decreases and the quantity of imports increases, resulting in a decrease in net exports, thus reducing the aggregate quantity of real GDP demanded.

Real-Balances Effect

One of the three reasons that aggregate demand is downward-sloping: When the price level rises, the real value of savings falls and people are less willing or able to buy goods and services, thus reducing the aggregate quantity of real GDP demanded.

Net Exports (NX)

The difference between exports (goods made domestically and purchased by foreign consumers) and imports (goods made in other countries and purchased domestically). Net exports equals exports minus imports (NX = X − M)

Grodd Investment (I)

The dollar value of all new capital purchased (as investment) and the expansion of inventories in an economy during a given time period. Gross investment is classified into three categories: business fixed investment, residential investment, and inventory investment. Sometimes referred to simply as investment.

Phillips Cure

The downward-sloping line that represents the negative, or inverse, relationship between the rate of inflation and the unemployment rate in the short run.

Income Effect

The effect that a change in the price of a good, service, or resource has on the purchasing power of income. For example, when prices decrease, the purchasing power of income increases and consumers are able to purchase more goods, services, or resources.

Substitution Effect

The effect that a change in the price of one good, service, or resource has on the demand for another. For example, an increase in the price of one good will increase the demand for its substitutes, and vice versa.

Social Institutions

The formal and informal "rules of the game" that society creates to provide structure to political, economic, and social interactions.

Sticky Resource Prices

The idea that resource prices tend to adjust slowly (be "sticky") in response to changes in the market.

Flexible Prices

The idea that, in the long run, resource prices are able to fully adjust to changes in the market.

Autonomous Consumption (A)

The level of consumption expenditure when income is equal to zero. Autonomous consumption is funded by drawing on savings or by borrowing.

Full-Employment Real GDP

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment. Also, the level of real GDP when the economy is in a long-run equilibrium.

Trough

The lowest point of economic activity in the business cycle, where real GDP reaches a minimum. The trough marks the end of a recession.

Diminishing Marginal Utility

The negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time.

Inflation Rate

The percentage increase in the overall price of goods and services in the economy from one time period to another.

Unemployment Rate

The percentage of workers in the labor force who are unemployed; a good indicator of the overall health of the economy.

Resource Price

The price paid for, or opportunity cost of, using a resource such as land, labor, capital, or entrepreneurial ability.

Which of the following explain why the Aggregate Demand (AD) curve slopes downward?

The real-balances effect The interest-rate effect The foreign-purchases effect

Long-Run Aggregate Supply (LRAS)

The relationship between real GDP and the price level when all input prices are flexible. LRAS is represented graphically as a vertical line at the full-employment level of real GDP, Y*. (VERTICAL LINE GRAPH)

Business Cycle

The short-term fluctuations experienced in the economy due to changes in levels of economic activity.

Aggregate Expenditures (AE)

The sum of all expenditures made in an economy on consumption, gross investment, government purchases, and net exports. In equilibrium, aggregate expenditures equals income, or real GDP.

Long Run

The time period in which all inputs of production can be changed.

Short Run

The time period in which at least one input of production is fixed, but other inputs can be changed.

Productivity

The total amount of output produced with a given level of inputs. For labor, it is the average amount of output produced per worker in a specific time period.

Which of the following statements are true?

We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy. We use demand to talk about the price and quantity of a single good or service produced in a specific market.

Price level increasing, causing a movement along the aggregate demand curve, can be explained by:

a decrease in net exports.

_____ demand can be interpreted as the overall demand for real GDP from four different sources.

aggregate

_____ demand includes the demand for goods and services as diverse as food clothing cars health care entertainment and housing.

aggregate

_____ expenditures determine the level of real GDP.

aggregate

A schedule or curve that shows the relationship between the quantity of real GDP demanded and the price level is called:

aggregate demand

________ can be interpreted as the overall demand for real GDP from Consumption Gross Investment Government Purchases and Net Exports.

aggregate demand

Expenditures Multiplier

cHANGE IN Y / CHANGE IN EXPENDITURES 1 / -MPC 1/MPS

A shift in the Aggregate Demand (AD) curve is due to:

changes in the determinants of aggregate demand.

In deriving the aggregate demand curve from the aggregate expenditures model, a(n) _____ in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher than before the price level change.

decrease

If consumers _____ the amount of goods and services they purchase, given constant prices, then aggregate _____ shifts to the left since _____ goods and services are being purchased at every price level.

decrease ,demand, less

Suppose every household decreases its consumption by 10% and consumption is roughly 70% of total output. A 10% decrease in consumption represents a 7% decrease in output. Aggregate demand will:

decrease by more than 7% because of the expenditures multiplier.

In deriving the aggregate demand curve from the aggregate expenditures model, a(n) _______ in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is _______ before the price level change.

decrease; higher than

Aggregate _____ relates the price level to real GDP

demand

If consumers increase the amount of goods and services they purchase, given constant prices, then aggregate _____ for real GDP _____

demand, increases

We use _______ to talk about the price and quantity of a single good or service produced in a specific market. We use _______ to describe the overall, or total, demand for all final goods and services produced in an economy.

demand; aggregate demand

A decrease in investment will shift the AE line _____ and shift the AD curve to the left.

down

Aggregate demand is:

downward sloping.

The equilibrium level of real GDP is found at the intersection of the aggregate expenditures schedule and the _____ line

equilibrium

One of the challenges of using government expenditures to stimulate the economy is that:

eventually the spending must return to their previous levels which may adversely affect aggregate demand in the economy. when spending needs to be cut it can cause a recession.

The equilibrium level of real GDP is found at the intersection of the aggregate _____ schedule and the equilibrium line

expenditures

If the price level rises, aggregate expenditure:

falls the aggregate expenditure line shifts down and there is a movement to a higher point along the aggregate demand line.

The substitution effect for an individual good is similar to the:

foreign-purchases effect for the aggregate demand.

If consumers decrease the amount of spending, aggregate demand shifts to the _____

left

According to the foreign purchases effect, if prices in the United States rise and prices in other countries remain stable without a corresponding adjustment in exchange rates, U.S. consumers will buy _____ foreign goods and services and imports will _____. Foreigners will buy fewer goods and services produced in the United States and exports will _____. The quantity of net exports will _____reducing the quantity of real GDP demanded.

more, rise, decrease, lower

If consumption, gross investment, or net exports are increasing because of a lower price level, there has been a:

movement along the AD curve.

Aggregate demand illustrates a(n) _____ relationship between the price level and the quantity of real GDP or output demanded.

negative

The income effect for an individual good is similar to the:

real balances effect for the aggregate demand.

When the price level rises, the real value of savings falls and people are less willing or able to buy goods and services. As a result, consumption falls and the quantity of real GDP demanded decreases. This describes the:

real balances effect.

According to the foreign purchases effect, if prices in the United States rise and prices in other countries remain stable without a corresponding adjustment in exchange rates, imports will _____, exports will _____, and net exports will _____ reducing the quantity of real GDP demanded resulting in a(n) _____ sloping aggregate demand curve.

rise, fall, fall, downward

According to the interest rate effect, when the price level _____, people need more money to make the same number of purchases, so the demand for money _____. As a result, interest rates increase, which lowers consumption and investment, causing the quantity of real _____ demanded to _____.

rises, increases, GDP, decrease

A decline in investment will:

shift the AE line downward and shift the AD curve to the left.

Changes in consumption and gross investment can:

shift the aggregate demand curve

Assume that an economy is initially in equilibrium. If the level of investment falls, the aggregate demand curve will

shift to the left.

When the price level rises, people need more money to make the same number of purchases, so the demand for money increases. As a result, interest rates rise, which lowers consumption and investment causing the quantity of real GDP demanded to decrease. This describes the:

the interest rate effect.

In an aggregate demand model, price level is on the _____ axis and the dollar value of real gross domestic product is on the _____ axis

y, x