ECON CHAPTER 10

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Which of the following statements illustrate fiscal policy​?

US government has proposed a hike in the corporate tax rate.

A higher exchange rate will result in:

a decrease in net exports and a decrease in aggregate demand

Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ (does, does not) change, and there is a movement up along the​ (long, short) run aggregate supply curve.

does not, long

According to the graph, an increase in the quantity of money is best described by:

the shift in the AD curve

According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:

increasing govt spending

Potential GDP can increase for any of three​ reasons:

1. An increase in the​ full-employment quantity of labor 2. An increase in the quantity of capital 3. An advance in technology

Which of these factors will cause the aggregate demand curve to shift?

A change in the expectations of households and firms

When potential GDP​ increases, ______.

Long and Short run Agg supply increase and their curves shift rightward

when the output gap is recessionary,

Potential GDP > Real GDP

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ LONG OR SHORT run curves

Short

Which of these factors will cause the long-run aggregate supply curve to shift to the right?

The accumulation of more machinery and equipment

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

The eventual agreement by workers to accept lower wages

The aggregate demand curve shows the relationship between:

The price level and the quantity of real GDP demanded

A rise in the money wage rate with no change in potential GDP creates​ ______.

a leftward shift of the SAS curve and no change in the LAS curve

Keynesian macroeconomists recommend​ policies that

actively offset changes in aggregate demand that bring recession

Keynesian theory

advocates active government intervention via fiscal policy when the economy is in recession.

Examples of fiscal policy that increase aggregate demand include​ ______.

an increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

How can government policies shift the aggregate demand curve to the right?

by increasing govt purchases

Monetary policy includes

changing the quantity of money and the interest rate.

Aggregate demand​ (decreases, increases) when an increase when an increase in the exchange rate occurs.

decreases

According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:

increased AD

Aggregate Demand (decreases, increases) when an increase in expected profits occurs.

increases

If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ (increases, decreases)

increases

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______, and creates​ ______ gap.

increases real GDP above potential​ GDP; an inflationary

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ potential GDP.

increases; decreases real GDP below

Monetarist macroeconomists recommend​ policies that

keep taxes low to avoid disincentive effects that decrease potential GDP

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ LONG OR SHORT run curves

long

Which of these shifts the aggregate demand curve to the right?

lower interest rates

In times of​ recession, the Fed​ _______ the interest rate and​ __________ the quantity of money.

lowers; increases

Which of these policies affects the economy through intended changes in the quantity of money and interest rates?

monetary policy

The classical view assumes:

money wage rates adjust quickly.

The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:

on the long-run aggregate supply curve

An international substitution effect arises because when the U.S. price level​ rises, _______.

people spend less on the more expensive​ U.S.-made items and they spend more on the less expensive​ foreign-made items

Classical macroeconomists recommend​ ______.

policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change

The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______.

rarely at full employment

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium.

rises, decreases

The defining feature of the classical view of macroeconomics is that the economy is​ ______.

self-regulating and always at full employment

The defining feature of the monetarist view of macroeconomics is that the economy​ is______.

self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady

The long-run aggregate supply curve:

shifts to the right as technological change occurs

If the price level rises and the money wage rate remains​ constant, there is a movement up along the​ (long, short) run aggregate supply curve.

short

The aggregate demand and aggregate supply model explains:

short-run fluctuations in real GDP and the price level

The aggregate demand curve slopes downward because​ of what to effects

wealth and substitution

wealth effect

when the price level falls, the real value of household wealth rises, and so will consumption


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