ECON-chapter 9

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left; decrease

The short-run aggregate supply curve is positively sloped because:

many input prices are slow to change in the short run.

When the economy is operating at full employment, why is an increase in aggregate demand (AD) NOT helpful to the economy?

?

Which of these statements is NOT true?

?

There is little doubt that computers and the Internet have changed the economy. Information technology (IT) can boost efficiency in nearly everything: Markets are more efficient, and IT improves the design, manufacture, and supply chain of products produced. How would the impact of IT on the aggregate demand and aggregate supply curves of the economy be represented?

The long-run aggregate supply curve would shift to the right.

A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.

increases; reduces

_____ is the output of goods and services demanded at different price levels.

Aggregate demand

Which of these statements is true?

Cost-push inflation causes a decline in output, an increase in price level, and an increase in unemployment.

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will shift to _____.

SRAS1; P1

What would cause the price level to decrease and employment to increase?

a shift to the right of the SRAS curve

The figure shows the aggregate demand (AD) curve, short-run aggregate supply (SRAS) curve, and long-run aggregate supply (LRAS) curve. In the figure, the economy is initially in equilibrium at full employment at point e. Assume aggregate demand declines by 300 units (shifts from AD0 to AD1). What is the new short-run macroeconomic equilibrium output?

2,600 units

Unemployment can be caused by a reduction in aggregate demand or short-run aggregate supply. Both changes are represented by a leftward shift of the curves. Which of these statements is true about shifts in aggregate demand and short-run aggregate supply?

If aggregate demand shifts left, the result will be a lower price level.

The table gives the output corresponding to each price level in an economy. Use the table to answer the following question: What is the equilibrium output and price level?

Q = 600; P = 100

Simultaneous recession and deflation can be explained by:

a decrease in aggregate demand.

Which of the following will NOT shift the aggregate supply curve to the left?

a decrease in corporate taxes

An increase in interest rates will cause:

consumers to purchase fewer goods and services.

If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; increase

Cost-push inflation is a situation in which the:

short-run aggregate supply curve shifts leftward.

In late 2015, Congressional House Speaker Paul Ryan helped pass a major budget bill signed by President Obama that eliminated many of the "sequester" provisions, or automatic spending cuts, that were implemented in 2013 after a significant political gridlock. Many economists applauded the elimination of the spending cuts because they felt the cuts increased the risk of another recession. Using the AD/AS model and what you know about the spending multiplier, explain why economists would come to this conclusion.

Government spending represents a large portion of spending in the economy. A decrease in spending shifts the aggregate demand curve to the left and causes a large change in the multiplier.

Which of the following explains how imports and exports affect aggregate demand?

Imports decrease aggregate demand and exports increase aggregate demand.

Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Interest rates fall and boost investments.

When the economy is hit with a supply shock, such as higher prices for energy, food, or raw materials, is this doubly disruptive and harmful to the economy?

It is doubly disruptive; it results in a leftward shift in the short-run aggregate supply (SRAS) curve leading to increased unemployment and a higher price level.

As the Japanese yen appreciated in value during the 1980s and 1990s, more Japanese automotive companies built manufacturing plants in other parts of Asia and in the United States. What impact did this have on net exports for the United States?

Japanese investment in the United States increased exports, which increases net exports.

The table gives the output corresponding to each price level in an economy. Use the table to answer the following question: Assume aggregate demand grows by 100% (doubles, so that output doubles at each price level). What is the new equilibrium output and price level?

Q = 800; P = 125

In 2016, a worldwide health scare resulted from the rapid spread of the mosquito-borne Zika virus, which was alleged to cause birth defects in infected pregnant women. Brazil, which also hosted the Summer Olympic Games that same year, was the epicenter of the epidemic. How did a health epidemic experienced in Brazil affect its aggregate demand?

The Zika virus decreased aggregate demand because fewer people traveled to Brazil for the Olympic Games, which resulted in a decline in consumer purchases from tourists.

Some advocates have suggested that the United States should move to a universal health care plan paid for at the federal level like Medicare, which would be funded from general tax revenues. Such a plan, it is argued, would guarantee quality health care to all. Ignoring all the controversy surrounding such a plan, would the introduction of universal health care paid for from general revenues have an impact on short-run aggregate supply?

Yes, it would likely result in an increase in short-run aggregate supply.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD2 to AD1?

an increase in interest rates

All of these explain a change in long-run aggregate supply EXCEPT:

changes in government spending.

The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____.

flexible; full employment

If the pound sterling appreciates against the U.S. dollar, England buys _____ U.S. goods, causing the U.S. aggregate demand curve to shift to the _____.

more; right

Which is a determinant of aggregate supply?

productivity

High taxes and/or heavy regulation:

raise costs of production so that the aggregate supply curve shifts to the left.

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

the multiplier effect

The aggregate supply curve is positively sloped in the short run for all of these reasons EXCEPT:

wages adjust completely to a change in the price level.