ECON CHAPTER 12 TEST #3

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Which of the following statements best illustrate a decrease in domestic resource prices and associated shift of the AS curve?

- The supply of available land expands shifting the AS curve rightward.- A substantial rise in immigration decreases wages shifting the AS curve rightward.- A decrease in the price of steel and electronic components shifts the AS curve rightward.

Which of the following influence expected returns on investment projects?

-Degree of excess capacity -Expectations about future business conditions -Technology -Business taxes

Which of the following explain the reason for the up-sloping aggregate supply curve in the short run?

-Input costs are fixed, but output costs are variable. -Higher prices mean higher profits when input costs are fixed.

Which of the following would be effects on the price of machinery when the cost of machinery components increases?

-Per-unit production prices for machinery would rise -The aggregate supply curve would shift to the left.

Select all the following that were characteristic of economic conditions in the United States during the 1990s.

-Strong growth-Very low inflation-Full employment

If total output is 100 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.

10

If real output is 20 units and 10 units of inputs are needed to produce that quantity, then the productivity is

2

If real output is 20 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.

2

How is the real-balances effect defined?

A higher price level reduces the purchasing power of the public's accumulated savings balances.

The dollar has just appreciated. What will be one result?

Aggregate demand will decline.

If currently the real GDP is less than equilibrium GDP, what are the adjustments that the economy will go through to achieve equilibrium GDP?

Competition among consumers will increase the price level, encouraging firms to produce more.

What happened to the U.S. economy in the 1990s?

GDP grew by 4% annually. Unemployment fell to 4%.

A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to

a decline in firms' expected returns

How can the effect of an unexpected decline in asset values on aggregate demand best be described?

a decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left.

A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.

a shift of

A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called

aggregate demand

Raising business taxes shift the

aggregate demand curve to the left

What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?

aggregate supply

A decrease in taxes will lead to

an increase in the aggregate demand

Consumer wealth is defined as the total value of

assets minus the total value of liabilities

In terms of aggregate supply and aggregate demand, the equilibrium price level is

at the point of intersection of the aggregate demand and aggregate supply curves

In the immediate short run

both input prices and output prices are fixed

Investment spending refers to purchases of which of the following?

capital goods

The determinants of aggregate supply are variables that

cause the aggregate supply curve to shift

What reduces the level of change in input prices in both the immediate short run and the short run?

contractual agreements

A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation

cost push

An increase in real interest rates will ______ investment spending and ______ borrowing costs.

decrease ; increase

Cyclical unemployment and recession often arise from in aggregate demand.

decreases

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.

decreases ; left

A decrease in investment spending at each price level will shift the aggregate

demand curve to the left

A decrease in investment spending at each price level will shift the aggregate ______.

demand curve to the left

An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.

demand pull

Factors that, if they change, shift the aggregate demand curve, are known as ______ of aggregate demand.

determinants

The "other things" that change and shift the aggregate demand curve are called the (blank) of aggregate demand or aggregate demand shifters.

determinants

Technological advancements will ______ expected returns on investment and ______ aggregate demand.

enhance ; increase

New and improved technologies will increase investment spending by

enhancing expected return on investment

When the price level rises, real GDP demanded will

fall

In the short run, labor contracts that cover several months or years cause wages to be (blank) for the duration of the contract.

fixed

In the long-run, output prices and input prices are

flexible

In the short run, output prices are ______ and ______ prices are ______.

flexible; input; sticky

Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being (blank) than potential GDP.

greater

A rise in consumer wealth will ______ consumer spending.

increase

An increase in consumer wealth prompts consumers to decrease savings and (blank) spending.

increase

New and improved technology, seen as investment spending by firms will lead to a(n) (blank) in aggregate demand

increase

A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.

increase ; left

Higher expected returns on investment will

increase the demand for capital and shift the aggregate demand curve to the right

An appreciation of the US real exchange rate will ______ imports and ______ exports while depreciation of the US exchange rate will ______ imports and ______ exports

increase; decrease; decrease; increase

One of the reasons that the short run aggregate supply curve is upsloping is because (blank) prices are fixed while (blank) prices are variable.

input ; output

In the immediate short run, labor contracts that cover several months or years cause

input prices to be sticky or slow to change

Investment spending depends on the real (blank) rate and the expected return from (blank)

interest ; investment

The equilibrium price level and equilibrium output is determined by the

intersection of the aggregate demand curve and the aggregate supply curve

The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is

inverse

The downward sloping aggregate demand curve indicates that there is a(n) relationship between the price level and real GDP

inverse

Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence

investment spending

A decline in investment spending at each price level will shift the aggregate demand curve to the

left

An increase in business taxes will shift the aggregate demand curve to the

left

If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the

left

The aggregate demand curve will shift to the (blank) when there is a reduction in government purchases.

left

Wage increases shift the aggregate supply curve to the

left

Input prices and output prices are flexible in the (blank) run.

long

An increase in real interest rates will ______ investment spending and ______ aggregate demand.

lower ; reduce

Which of the following enhance the expected returns on investment and thus increase aggregate demand?

new and improved tech

The short-run is the period in which

output prices are flexible but input prices are fixed or highly inflexible

Aggregate supply is represented as a schedule or curve showing the relationship between a nation's (blank) level (index) and the amount of real domestic output that firms in the economy produce.

price

The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.

real balances effect

What is one result of a decrease in aggregate demand?

recession

In the immediate short run for aggregate supply, both input and output prices

remain fixed

A tax cut will shift the aggregate demand (AD) curve to the

right

An increase in exports relative to imports will shift the aggregate demand (AD) curve to the

right

The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the

right

A decline in investment spending at each price level will

shift the aggregate demand curve to the left

An increase in government spending is likely to

shift the aggregate demand curve to the right

An increase in investment spending at each price level will

shift the aggregate demand curve to the right

What will a rise in net exports do?

shift the aggregate demand curve to the right

Changes that increase per-unit production costs will

shift the aggregate supply curve to the left

Changes that reduce per-unit production costs will

shift the aggregate supply curve to the right.

A leftward shift in the aggregate (blank) curve leads to cost-push inflation.

supply

The two changes of the legal-institutional environment that will shift the aggregate supply curve are

taxes and government regulations

The intersection of the aggregate demand and aggregate supply curves determines

the equilibrium price level and equilibrium real GDP

Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?

the short run curve

True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.

true

The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies

typically change price levels and output levels simultaneously

An unexpected increase in asset values that results in an increase in consumer spending is called the (blank) effect.

wealth

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.

wealth

The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer

wealth


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