Chapter 5
Given an aggregate supply curve, a decrease in aggregate demand will
decrease real GDP
If the price level in the U.S. increases, other things constant, aggregate output demanded
decreases because U.S. products become more expensive relative to foreign products
The ultimate objective of macroeconomics is to:
develop and test theories about how the overall economy works
The ultimate objective of macroeconomics is to:
develop and test theories about how the overall economy works.
One explanation for the slope of the aggregate demand curve is that:
domestic goods become more expensive relative to foreign goods when prices rise, reducing exports.
A recession is best defined as a period during which
employment, output, and income decrease
A period of sustained growth in output in an economy is referred to as a(n) _____.
expansion
An economic variable that is measured per unit of time, such as spending per year, is known as a:
flow variable
The market value of all final goods and services produced in a nation during a particular period is called the
gross domestic product
The long-term growth in production in an economy can be partially explained by
improvements in the rules of the game that facilitate production and exchange
Which of the following would indicate the beginning of a recessionary phase in an economy?
Businesses slowing down
Which of the following is a likely consequence of an increase in the price level in an economy, other things constant?
Government demanding less military hardware
Which of the following economic measures is most useful in comparing different economies across the world?
Gross domestic product
Which of these describes the real gross domestic product?
Gross domestic product that has been adjusted for changes in the price level
Identify the correct statement
If the price level increases, we feel poorer and buy less
Which of the following factors can partly explain the long-term growth in production in the U.S. economy?
Improvements in technology
Which of the following is a flow variable?
Investment spending in an economy over the years
Which of these statements correctly explains the shape of the aggregate demand curve?
Rising prices reduce people's wealth and thereby decrease spending
Identify an example of a flow variable
The amount of sales tax collected per year
Which of the following describes an economy's price level?
The average price of aggregate output
For a given aggregate supply curve, an increase in aggregate demand will:
increase real GDP
If the price level in the U.S. decreases, other things constant, aggregate output demanded
increases because U.S. products become cheaper relative to foreign products.
The aggregate supply curve of an economy
is an upward-sloping curve
Which of the following is not assumed to be constant along an aggregate supply curve?
The price level in an economy
_____ varies along a given aggregate demand curve
The price level in the domestic country
Which of the following concepts is not included in the study of macroeconomics?
The profit-maximizing condition
Which of these is the most ideal measure of aggregate output?
The real GDP
Economic activities that signal forthcoming changes in the economy are referred to as
leading economic indicators
By a leading economic indicator, economists mean
an indicator of future economic activity
The aggregate demand curve reflects:
an inverse relationship between the price level in an economy and real GDP demanded, other things constant.
As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase changes. This is depicted by:
an upward movement along the aggregate demand curve
Economic fluctuations or business cycles
are fluctuations in the level of economic activity relative to a long-term growth trend.
Economic fluctuations
are linked, but not perfectly synchronized, across countries.
The demand for _____ is most severely affected by a recession
automobiles
A fall in the price level, other things constant, will
cause a downward movement along the aggregate demand curve
A rise in the price level, other things constant, will:
cause an upward movement along the aggregate demand curve
A period of sustained decline in output in an economy is known as a(n) _____.
contraction
The aggregate demand curve for an economy depicts the:
quantity of goods and services demanded at different price levels during a given time period, other things held constant.
Macroeconomic equilibrium is best described as a situation in which
quantity supplied equals quantity demanded at a unique price level.
The value of a country's final goods and services after adjusting for changes due to inflation is called its _____.
real GDP
The mercantilism policy failed to generate gains from trade for countries which adopted it because of:
retaliations from other countries
A _____ is an amount measured at a particular point in time
stock variable
If the U.S. price level increases relative to price levels in foreign countries, _____.
the aggregate demand curve for the U.S. will shift inward and the aggregate supply curve would remain unchanged
An example of a flow variable in economics is
the earnings of Malaya from piano classes each month
Macroeconomics is a branch of economics that studies:
the overall performance of an economy
Economists use the price index to eliminate year-to-year changes in GDP caused solely by changes in:
the price level
The aggregate supply curve represents
the quantity of aggregate output that producers are willing and able to supply at each possible price level, other things constant
An example of a stock variable in economic theory will be
the total value of the government bonds held by an individual
Which of the following faulty economic policies was adopted by President Hoover during the Great Depression?
An increase in the tax rate
Which of the following partly accounts for the long-term growth in production in the U.S. economy?
An increase in the availability of resources
Which of the following is a likely impact of an increase in the price level in an economy on the aggregate supply in the economy?
An increase in the quantity of real GDP supplied
Which of the following is a likely impact of a decrease in the price level in an economy on the aggregate supply in the economy?
A decrease in the quantity of real GDP supplied
Identify the most likely impact of a decrease in the wealth of consumers in an economy, other things remaining constant.
A leftward shift of the aggregate demand curve
Which of the following is the most likely to occur when a decrease in the price level in an economy affects the wealth of consumers, other things constant?
A leftward shift of the aggregate demand curve
Which of these statements best describes a flow variable?
An economic variable that is measured per unit of time
Which of the following would indicate the beginning of an expansionary phase in an economy?
An improvement in consumer confidence
The following table shows an aggregate demand schedule and an aggregate supply schedule. Which of the following is true? Table 5.1 Aggregate Demand (quantity demanded in billions of dollars) Price Level ($) Aggregate Supply (quantity supplied in billions of dollars) 100 150 1,200 200 125 1,000 400 100 800 600 75 600 800 50 400 1,000 25 200
Equilibrium output is $600, and equilibrium price level is 75
Identify a valid trend observed in U.S. business cycles since 1933.
Expansions generally lasted longer than contractions
Which of the following is true of a recession?
It begins after an expansion has peaked.
Which of the following is true of the mercantilism policy?
It emphasizes the importance of trade restrictions in achieving economic growth.
Which of the following is the significance of a country's price index?
It helps in determining a country's real GDP each year
Which of the following statements regarding the gross domestic product is true?
It is useful in comparing the overall performances of different economies at the same time.
Which of the following signifies the role of money in an economy?
It serves as a medium of exchange in the economy.
Which of the following is true of a recessionary period?
It usually lasts for a few months
Which of these is a coincident economic indicator?
Personal income
Which of the following is most likely to happen if the aggregate demand curve for an economy (which was initially in equilibrium) shifts to the left, aggregate supply remaining unchanged?
The equilibrium real GDP will decrease
Which of the following variables is measured only at a particular point in time and not over different time periods?
The federal government's debt
Identify an example of a stock variable
The number of unemployed people in an economy in a particular year
Identify an example of a stock variable
The number of unemployed people in an economy in a particular year.
Which of these is a lagging economic indicator?
The unemployment rate
Which of the following is true of economic fluctuations?
They can be experienced by the world economy as well as by a single nation.
Which of the following is true of leading economic indicators
They foreshadow turning points in the business cycle.
Which of the following best describes a flow variable and not a stock variable
You earn $500 per week
Which of the following best describes a stock variable and not a flow variable?
You own government bonds worth $5,000
When economists refer to an economy's price level, they indicate
a composite measure of prices of all goods and services
A depression can be defined as:
a severe reduction in total production coupled with high unemployment that lasts for several years.
The economic policy based on the incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury is called _____.
mercantilism
If all firms expect greater demand for their products or services, they will hire _____ resources like labor and capital and the economy will experience _____.
more; growth
A key difference between recessions and depressions is that recessions are
shorter and less severe than depressions.
