Econ Final Exam
aggregate demand decreases if the exchange rate ______ or foreign income ______
increases; decreases
The multiplier is greater than 1 because the change in autonomous expenditure leads to _________
more induced expenditure
If inflation is expected, _________
neither a cost-push inflation nor a demand-pull inflation occur
To calculate the multiplier, we divide _____ by ______
the change in equilibrium expenditure; the change in autonomous expenditure
The marginal propensity to import is equal to _____
the change in imports divided by the change in real GDP, other things remaining the same
An increase in investment shifts the AE curve ______ and the AD curve __________-
upward; rightward
everything else remaining the same, an increase in aggregate demand increases ______
the quantity of real GDP supplied
If an economy is at full employment equilibrium and a decrease in consumption expenditure occurs, the new short run equilibrium is ____ and ____ gap emerges
a below full-employment equilibrium; a recessionary
If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced ________
a demand-pull rise in the price level
Deflation is _______
a persistently falling price level
The best forecast available, which is based on all the relevant information is called ______
a rational expectation
You observe that unplanned inventories are increasing. You predict that there will be __________
a recession
The business cycle occurs because __________________-
aggregate demand and short run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP
Deflation occurs when ____________
aggregate demand increases at a persistently slower rate than aggregate supply
equilibrium expenditure is the level of aggregate expenditure that occurs when ___________
aggregate planned expenditure equals real GDP
Aggregate planned expenditure is the sum of planned ______
consumption expenditure, investment, government expenditure, and exports minus imports
examples of fiscal policy that increase aggregate demand include _________
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
For every dollar increase in _____ expenditure, the multiplier determines the increase in real GDP
autonomous
The multiplier is the amount by which the change in ____ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP.
autonomous
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______
autonomous; the change in equilibrium expenditure and real GDP
Firms_____ production, and real GDP ________
decrease; decreases
The consequences of deflation are _______
employers hire fewer workers, a decrease in real GDP and employment, redistribution of income and wealth
Interest rate parity means ______
equal rates of return
An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate _____ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to _____
falls below; rise
An increase in expected future income ____ aggregate demand
increases
An increase in expected future profits ______ aggregate demand
increases
An increase in the expected future inflation rate ______ aggregate demand
increases
The multiplier increases when the marginal propensity to consume ____
increases
consumption expenditure minus imports, which varies with real GDP, is called _______________
induced expenditure
If aggregate planned expenditure exceeds real GDP, then ________
inventories decrease, and as real GDP increases a movement up along the AE curve occurs
If aggregate planned expenditure is less than real GDP, then ______________
inventories increase, and as real GDP decreases a movement down along the AE curve occurs
Stagflation _____
is a combination of recession and inflation
A flexible exchange rate is one that ______
is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank
A fixed exchange rate is one that _______
is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market
A ____ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment
keynesian
For a given increase in aggregate demand, the steeper the slope of the short run aggregate supply curve, the _______ is the increase in the price level and the _______ is the multiplier effect on real GDP in the short run
larger; smaller
A fall in the price level ______
shifts the AE curve upward and brings a movement down along the AD curve
The quantity of US dollars demanded in the foreign exchange market depends on many factors, the main ones being_______
the exchange rate, world demand for US exports, interest rates in the US and other countries, and the expected future exchange rate
Along the short-run Phillips curve, ____________
the expected inflation rate and the natural unemployment rate are constant
The US interest rate differential rises if ______, and the larger the US interest Rate differential, the ______ is the demand for US dollars in the foreign exchange market.
the foreign interest rate falls; greater
The marginal propensity to save is _____
the fraction of a change in disposable income that is saved
The marginal propensity to consume is _____
the fraction of a change in disposable income that is spent on consumption
Along the long-run Phillips curve, __________
the unemployment rate is constant at the natural unemployment rate
Disposable income is aggregate income minus taxes plus _____
transfer payments
Planned saving + planned consumption expenditure = ______
disposable income
Firms ______ production, and real GDP ________
increase; increases
The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______
Change C+ Change YD; Change S + Change YD
What influences consumption decisions and shifts the consumption function?
The real interest rate, wealth, and expected future income
An increase in potential GDP increases _____
both long run aggregate supply and short-run aggregate supply
inflation expectations "become self-fulfilling" because consumers decide to _____, which ______
buy more goods and services at today's lower prices; increases aggregate demand
An increase in investment shifts the AE curve upward by an amount equal to the _______, and shifts the AD curve rightward by an amount equal to the _________
change in investment; change in investment times the multiplier
A _____ macroeconomist believes that the economy is self-regulating and always at full-employment
classical
The components of aggregate expenditure that are influenced by real GDP are _____
consumption expenditure and imports
changes in consumption spending play a large role in the business cycle because ____ accounts for approximately _____ percent of GDP
consumption expenditure; 70
If real GDP and aggregate expenditure are less than equilibrium expenditure, firms' inventories ______
decrease
The multiplier increases when the marginal propensity to import ____ or the income tax rate _____
decreases; decreases
aggregate demand decreases if expected future income, inflation, or profits _____. And aggregate demand decreases if fiscal policy ____ government expenditure.
decreases; decreases
Aggregate demand decreases if monetary policy _____ the quantity of money and ____ interest rates
decreases; increases
The consumption function is the relationship between consumption expenditure and _____, other things remaining the same.
disposable income
The relationship between saving and ____, other things remaining the same, is called the saving function
disposable income
a crawling peg exchange rate policy is one that ______
follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market
The market in which the currency of one country is exchanged for the currency of another country is the _______. The price at which one currency exchanges for another currency is the ______.
foreign exchange market; exchange rate
If GDP and aggregate expenditure are greater than equilibrium expenditure, firms' inventories ________
increase
The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______
increase real GDP by a given amount
As we move up along the long run aggregate supply curve, _____
the real wage rate remains constant
Aggregate demand decreases if fiscal policy ____ taxes or _____ transfer payments
increases; decreases
The exports effect is the result that the lower the exchange rate, other things remaining the same, the ________
lower are the prices of US produced goods and services to foreigners and the greater is the volume of US exports
The imports effect is the result that the higher the exchange rate, other things remaining the same, the ________
lower are the prices of foreign produced goods and services to Americans and the greater the volume of US imports
A decrease in the marginal propensity to import ___________, everything else remaining the same
makes the multiplier larger
An increase in income taxes ______, everything else remaining the same.
makes the multiplier smaller
An economy is at potential GDP when it experiences an increase in costs. The economy experiences __________
stagflation
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along _____. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movements along _____. The quantity of real GDP supplied _____.
the SAS curve; increases
The marginal propensity to import is equal to ___________
the change in imports divided by the change in real GDP, other things remaining the same
If the natural unemployment rate increases and the expected inflation rate remains constant, then _____________
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals ________
the marginal propensity to consume x the increase in real GDP
When real GDP increases, the change in imports equals ______
the marginal propensity to import x the increase in real GDP
A cost-push rise in the price level can arise from an increase in _______
the money wage rate or money prices of raw materials
As we move up along the short-run aggregate supply curve, _____
the money wage rate, the prices of other resources, and potential GDP remain constant
A stagflation can turn into a cost-push inflation process when _______
the quantity of money persistently increases
A stagflation can turn into a cost-push inflation process when ________
the quantity of money persistently increases
An increase in the price level when the money wage rate remains unchanged increases _____________________
the quantity of real GDP supplied
When unwanted inventories pile up, ___________. Prices ___________.
the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall
If the expected inflation rate increases and the natural rate of unemployment remains constant, then ________
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
A movement ________ along the short-run Phillips curve occurs when there is an ________ increase in aggregate demand
up; unexpected