Chapter 13

Reasons that the recession of 2008- 2009 did not become a depression include:

The Fed bailed out troubled financial institutions & The government increased its expenditures, which increased aggregate demand

Inflation can be started by

a decrease in aggregate supply or an increase in aggregate demand

If the Fed increases the quantity of money, then

aggregate demand increases and the AD curve shifts rightward.

If real GDP is less than potential GDP, then the ________ and the price level ________.

aggregate supply curve shifts rightward; falls

In a demand- pull inflation, money wage rates rise because

an increase in aggregate demand creates a labor shortage.

Demand pull inflation can be started by

an increase in government expenditure

Cost- push inflation can start with

an increase in oil prices

If there is a rise in the price level, there is ________ in the quantity of real GDP supplied and a movement ________ along the AS curve.

an increase; upward

If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is

an inflationary gap.

Which of the following changes aggregate supply and shifts the aggregate supply curve?

change in potential GDP & change in the money wage rate

When cost- push inflation starts, real GDP ________ and the unemployment rate ________.

decreases; rises

The AD curve is a graph depicting the

relationship between the price level and the quantity of real GDP demanded.

A rise in the U.S. price level brings a ________ in the price of U.S. exports relative to imports that ________ exports of U.S. goods, bringing ________ in the quantity of U.S. real GDP demanded.

rise; decreases; a decrease

In the short run, a rise in the price level brings a ________ in the real interest rate that ________ investment, bringing ________ in the quantity of real GDP demanded.

rise; decreases; a decrease

Because of the existence of the aggregate demand multiplier, a $10 billion change in expenditure

shifts the aggregate demand curve by more than $10 billion.

To prevent demand-pull inflation,

the Fed must not let the quantity of money persistently rise.

The aggregate supply curve illustrates that the

higher the price level, the greater the quantity of real GDP supplied.

A tax cut ________ aggregate demand and ________.

increases; shifts the AD curve rightward

Potential GDP

is independent of the price level

If the economy is at macroeconomic equilibrium, then real GDP

might be equal to, greater than, or less than potential GDP

A change in the price level produces a ________ the aggregate demand curve.

movement along

A macroeconomic equilibrium occurs when the

quantity of real GDP demanded equals the quantity of real GDP supplied even if they are not equal to potential GDP.

If a country is trying to recover from a recent recession, it is unlikely their government officials will decide to ________ because it would ________.

raise interest rates; decrease aggregate demand

Moving along the AS curve, when the price level increases, the

real wage rate falls, and there is an increase in the quantity of real GDP supplied.

If there is an increase in expected future income, then

the aggregate demand curve shifts rightward.

If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then

the price level falls and firms decrease production.

The aggregate demand curve shifts when any of the following factors change EXCEPT

the price level.

Which of the following does NOT affect potential GDP?

the quantity of money

If the equilibrium price level is 135 but the actual price level is 150, then

the quantity of real GDP demanded is less than the quantity of real GDP supplied.

The aggregate supply curve shows the relationship between

the quantity of real GDP supplied and the price level.