Chapter 10-HW
Changes in consumption spending play a large role in the business cycle because _______ accounts for approximately ______ percent of GDP.
consumption expenditure; 70
Aggregate demand decreases if expected future income, inflation, or profits ______. And aggregate demand decreases if fiscal policy ______ government expenditure.
decrease decreases
Choose the correct statement. A. The quantity of real GDP demanded depends on the quantity of real GDP supplied. B. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. C. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports. D. The higher the price level, the greater is the quantity of real GDP demanded.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
Keynesian
Consumers sought the biggest bang for their economic stimulus bucks in June, sending the sales of discount merchants such as Wal-Mart and Costco surging. ... As the economy remains weak ... shopperslong dash rich and poorlong dash are flocking to discounters for low-cost goods. ... Wal-Mart Stores Inc. trounced analyst expectations Thursday with a 5.8 percent jump in June sales, ... attributing the increase to the government's economic stimulus payments. ... The retailer said sales jumped across the board. But the most dramatic increases were in entertainment, particularly for flat-screen televisions, and apparel, especially in swimwear and sportswear. ... Another major retailer, the warehouse club Costco Wholesale, beat analyst expectations with a 9 percent increase in same-store sales for June. ... Target, a top competitor to Wal-Mart, said that its same-store sales edged up 0.4 percent, well above the 0.5 percent decline projected by analyst consensus. ... The ______ macroeconomic school of thought justifies the policy discussed in this news clip.
Keynesian
Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment.
Choose the statement that is incorrect. A. Over the business cycle, aggregate supply fluctuates around potential GDP. B. Aggregate supply is the relationship between the quantity of real GDP supplied and the price level. C. At any given time, the quantity of capital and the state of technology are fixed, but the quantity of labor is not fixed. D. The quantity of real GDP supplied is the total quantity of goods and services, valued in constant base-year (2009) dollars, that firms plan to produce during a given period.
Over the business cycle, aggregate supply fluctuates around potential GDP.
If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _____ and _____ gap emerges.
a below full-employment equilibrium; a recessionary
At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
an above; right
At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left
An increase in potential GDP increases ______.
both long-run aggregate supply and short-run aggregate supply
Inflation expectations "become self-fulfilling" because consumers decide to _____, which ______.
buy more goods and services at today's lower prices; increases aggregate demand
A ______ macroeconomist believes that the economy is self-regulating and always at full employment.
classical
Aggregate demand decreases if monetary policy ______ the quantity of money and ______ interest rates.
decreases increases
Aggregate demand decreases if fiscal policy ______ taxes or ______ transfer payments.
increases decreases
Aggregate demand decreases if the exchange rate ______ or foreign income ______.
increases decreases
An increase in expected future income increases aggregate demand. An increase in the expected future inflation rate increases aggregate demand. An increase in expected future profits increases aggregate demand.
increases increases increases
The following events have occurred at times in the history of the United States: 1. The world economy goes into an expansion. 2. Canadian businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Starting from a position of long-run equilibrium, a world expansion ______, and an increase in expected future profits ______. Starting from a position of long-run equilibrium, an increase in government expenditures ______ real GDP and ______ the price level.
increases real GDP and raises the price level; increases real GDP and raises the price level increases real GDP and raises the price level
Stagflation ______.
is a combination of recession and inflation
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
Everything else remaining the same, an increase in aggregate demand increases ______.
the quantity of real GDP supplied
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant