econ final

If the economy is currently at full employment, what will be the short-run effect of an increase in saving?

A decrease in real GDP, a decrease in the price level

During the Great Depression, unemployment was extraordinarily high for more than twelve years. Prices fell significantly. Which of the following is a possible explanation of the length of the Depression?

Aggregate demand must have decreased causing a new short-run equilibrium Wages must not have fallen.

Assume the economy is at full employment. An increase in government spending will have which of the following effects over time?

An increase in real GDP and prices, followed in the long run by a period of decreasing real GDP and increasing prices

In economy A, we are in the middle of a recession. In economy B, we are experiencing a demand-pull inflation. Assume that total spending increases in both economies. The real GDP level in economy A will ______________. The real GDP level in economy B will ______________.

Increase; increase

nflation can result from a change in aggregate demand or a change in aggregate supply. How can one tell which of the two has caused the inflation?

Inflation caused by demand is accompanied by rising real GDP, while inflation caused by aggregate supply comes with relatively low real GDP.

An economy which is producing at its potential level of GDP has just experienced a quadrupling of oil prices. What will happen as a result?

Inflation will increase and unemployment will increase. Eventually prices will come back down and employment will rise.

What happens to the price level as a result of an increase in spending?

Price increases

Stagflation is characterized by which of the following?

Rising inflation and rising unemployment

If the economy is in a recession, which of the following is true?

Short-run equilibrium output is less than the full employment level of output.

Cost-Push Inflation

When inflation is caused by changes in higher prices of inputs or higher costs of production

An increase in investment spending can ultimately cause ______________ in the aggregate demand curve, ______________ in the aggregate supply curve, and ______________ in the potential level of GDP.

An increase, an increase, an increase

At the new level of output, is the economy above, below or at the full employment level of output?

At full-employment

Compare two possible situations: I. Current real GDP is above the full employment level of real GDP. II. Current real GDP is below the full employment level of real GDP. Given the two situations above, in which will the change take place more rapidly?

Faster in situation I

An increase in the labor force will have which of the following results? Aggregate supply will ______________. Potential Real Gross Domestic Product will ______________.

Increase; increase

In economy A, we are in the middle of a recession. In economy B, we are experiencing a demand-pull inflation. Assume that total spending increases in both economies. Economy A's price level will change by ______________ economy B's price level. Economy A's real GDP will change by ______________ economy B's real GDP.

Less than; more than

The Phillips Curve shows the ______________ short-run relationship between inflation and unemployment.

Negative

Which of the following expressions does not describe the full employment level of output?

Non-accelerating inflation rate of real GDP

If the economy is currently at full employment, what will be the short-run effect of a fall in U.S. exports?

Real GDP = Decrease Price level = Decrease

Compare two possible situations: I. Current real GDP is above the full employment level of real GDP. II. Current real GDP is below the full employment level of real GDP. Which of the following is most likely?

Wages will rise in situation I and fall in situation II.

Demand-Pull Inflation

When the cause of inflation is aggregate demand increasing more rapidly than aggregate supply

If the economy were at a level of real GDP below the potential level of GDP, what are the forces that might bring the economy to full employment without any active fiscal policy?

With high unemployment, there will be a tendency for wages to fall, stimulating production, lowering prices, and increasing consumer spending.

Explain why the economy may naturally return to the full employment level of real GDP if we are currently producing more than the potential level of real GDP in the short run.

With low unemployment, there will be a tendency for wages to rise, lowering production, increasing prices, and lowering consumer spending.