ECON 131 Homework Chapter 12

The real-balances effect indicates that:

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to:

a rightward shift of the aggregate demand curve in the AD-AS model.

Other things equal, if the U.S. dollar were to depreciate, the:

aggregate supply curve would shift to the left.

Refer to the diagram. If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that:

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce:

an expansion of real output and a stable price level.

The interest-rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed.

Other things equal, appreciation of the dollar:

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

Other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1 to AE2 would:

increase aggregate demand from AD1 to AD2.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand.

Other things equal, a reduction in personal and business taxes can be expected to:

increase both aggregate demand and aggregate supply.

In the diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.

Refer to the diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n):

increase in investment spending.

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible.

When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in:

interest rates and lower investment expenditures.

Use the following diagrams for the U.S. economy to answer the following question. Picture Which of the diagrams best portrays an improvement in expected rates of return on investment?

C.

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective?

Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.

An increase in wealth from a substantial increase in stock prices will move the economy along a fixed aggregate demand curve.

False

The price level in the United States is more flexible downward than upward.

False

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

True

Which of the following is incorrect?

When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

In the diagram, a shift from AS1 to AS2 might be caused by:

a decrease in the prices of domestic resources.

Answer the question on the basis of the following table for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of other question using the same table, unless otherwise stated. Picture Refer to the table. If this nation's equilibrium price level is 125, its net exports will be:

minus $2 billion.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

not be possible due to the minimum wage law.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by:

panel (A) only.

The aggregate supply curve (short run) is upsloping because:

per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

Refer to the diagram. If the equilibrium price level is P1, then:

producers will supply output level Q1.

A rightward shift in the aggregate supply curve is best explained by an increase in:

productivity.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in:

productivity.

Productivity measures:

real output per unit of input.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. All else being equal, if the price of each input increased from $4 to $6, productivity would:

remain unchanged.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate:

supply curve would shift to the left.

The equilibrium price level and level of real output occur where:

the aggregate demand and supply curves intersect.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:

the increase in productivity.

The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model:

the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level.

Per-unit production cost is:

total input cost divided by units of output.

The real-balances, interest-rate, and foreign purchases effects all help explain:

why the aggregate demand curve is downsloping.

Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: Picture Refer to the table. If the price of each input is $5, the per-unit cost of production in the economy is:

$2.50.

Answer the question on the basis of the following table for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of other question using the same table, unless otherwise stated. Picture Refer to the table. If the amounts of GDP supplied at the price levels shown (in descending order) are $45, $43, $40, $37, and $31, the equilibrium level of real GDP will be:

$37 billion.

Answer the question on the basis of the following table for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of other question using the same table, unless otherwise stated. Picture Refer to the table. If the amounts of GDP supplied at the price levels shown (in descending order) are $27, $25, $22, $18, and $13, the equilibrium price level will be:

125.

Answer the question on the basis of the following table for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of other question using the same table, unless otherwise stated. Picture Refer to the table. Which of the following schedules constitutes aggregate demand in this country?

128 - $19 125 - 25 122 - 31 119 - 37 116 - 43

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Picture Refer to the data. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to:

150 and $300, respectively.

In the diagram, the economy's immediate-short-run aggregate supply curve is shown by line:

3.

In the diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines:

4 and 1.

Use the following diagrams for the U.S. economy to answer the following question. Picture Which of the diagrams best portrays the effects of an increase in resource productivity?

A.

Which of the following would not shift the aggregate supply curve?

An increase in the price level.