Economics Chapter 13. Aggregate Supply/Demand

True/False An increase in taxes shift the aggregate demand curve to the right

False An increase in taxes shift the aggregate demand curve to the left

Potential GDP is independent of

Price Level

A change in the price level, produces

a movement along the demand curve

If the cost of production decrease, there is

an increase in the aggregate supply and the AS curve shifts rightward

An increase in the price level leads to

an upward movement along the aggregate supply curve

When the price level rises and increases the demand for money, the nominal and real interest rate

both rise

An increase in the money wage rate ___________ and an increase in the money prices of raw materials ______________.

both shift the AS curve leftward

Over the business cycle, the quantities of capital, human capital, and entrepreneurial talent....

change gradually and do not fluctuate much

Which of the following changes aggregate supply and shifts the aggregate supply curve?

change in potential GDP and change in the money wage rate

A change in the price level

changes the quantity of real GDP supplied

Raising interest rates causes aggregate demand to

decrease

If the price level doubles, it will

decrease the buying power of money

A year over year ___________ in the buying power of money means that definitely from one year to the next.

decrease; the price level increased

If the economy is at macroeconomic equilibrium, then real GDP

might be equal to, greater than, or less than potential GDP

If the price level rises but the money wage rate does not, then firms will hire _________ labor and the quantity of real GDP supplied will ____________.

more; increase

When the domestic price level increases, exports decrease and imports increase. Other things the same, this change is illustrated by a...

movement upward along the demand curve

If the price level increases, there is _____________ the AD curve and the quantity of real GDP demanded ____________.

movement upward along; decreases

The money wage rate is constant when moving along

only the aggregate supply curve

Moving along the aggregate supply curve,

only the price level changes

Because there is a ___________ relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is ________curve

positive; an upward-sloping

Which of the following shifts the aggregate supply curve rightward? i. the money wage rate rises ii. potential GDP increases iii. government expenditure on goods and services increases

potential GDP increases, which shifts curve rightward

Changes in ______ cause a movement along the aggregate demand curve while changes in ________ shift the aggregate demand curve

price level; taxes

The slope of the aggregate supply curve shows that, all else the same, the.....

quantity of real GDP supplied increases as the price level increases

If the money wage rate does not change, a decrease in the price level will ______________ the real wage rate and ___________ firms' profit.

raise; decrease

A fall in the real wage rate ________ firms' profits and leads to ________ in the quantity supplied.

raises; an increase

Moving along the potential GDP line, when the price level changes, the.......

real wage rate stays at the full-employment equilibrium level money wage rate changes by the same percentage money prices of non-labor resources change by the same percentage

The AD curve is a graph depicting the

relationship between the price level and the quantity of real GDP demanded

The real wage rate DEFINITELY falls if the money wage rate __________________ and the price level _________.

remains constant; rises

Increase in the quality of capital, shifts the Potential GDP line _____________ and the aggregate supply curve _______________

rightward; rightward

A rise in the U.S. price level brings a ________ in the price of U.S. exports relative to imports that ________ exports of U.S. goods, bringing ________ in the quantity of U.S. real GDP demanded.

rise; decreases; a decrease

In the short run, a rise in the price level brings a ________ in the real interest rate that ________ investment, bringing ________ in the quantity of real GDP demanded.

rise; decreases; a decrease

When the price level rises, the real interest rate ____________ and the quantity of real GDP demanded ____________.

rises; decreases

It is profitable to hire more labor if the price level __________ and the money wage rate ________.

rises; falls

When potential GDP increases, the potential GDP line ____________ and the aggregate supply curve ____________

shifts rightward; shifts rightward

When the money wage rate falls, the aggregate supply curve

shifts righward

During an inflationary gap,

the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP that exceeds potential GDP.

Macroeconomics equilibrium occurs when

the aggregate quantity demanded is equal to the aggregate quantity supplied, even if they are not equal to potential GDP

If real GDP is greater than potential GDP, then to restore equilibrium, __________ and the price level ___________-

the aggregate supply curve shifts leftward; rises

The AS shifts leftward if

the money wage rate increases

Which does not affect potential GDP?

the quantity of money

If the equilibrium price level is 135 but the actual price level is 120, then

the quantity of real GDP demanded is greater than the quantity of real GDP supplied.

If the equilibrium price level is 135 but thee actual price level is 150, then

the quantity of real GDP demanded is less than the quantity of real GDP supplied

The aggregate supply curve shows the relationship between

the quantity of real GDP supplied and the price level

When the price level rises and the money wage rate does not change,

the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change

Along the aggregate supply curve, the quantity of real GDP supplied increases when the price level rises because

the real wage rate falls

The quantity of real GDP supplied increases when the price level increases because

the real wage rate falls

The line showing potential GDP is a vertical straight line because

there is only one level of full employment at any point in time

True/False A change in money wage does not shift the aggregate demand curve

true

True/False At full employment, aggregate supply is equal to potential GDP

true

An increase in government expenditure on goods and services leads to an .....

aggregate demand curve shifting rightward

A recessionary gap occurs when ___________ so that the real GDP is _____________ potential GDP.

aggregate demand decreases; less than

If real GDP is less than potential GDP, then the ____________ and the price level ____________.

aggregate supply curve shifts rightward; falls

As the money wage rate increases,

aggregate supply decreases

Starting from a situation of full employment, an increase in aggregate demand creates _____________ and ____________ the price level.

an inflationary gap; raises

If firms' expectations about the future become pessimistic so that they think future profits will be lower, then aggregate demand

decreases and the AD curve shifts leftward

A rise in the price level,

decreases the quantity of real GDP demanded

When cost pull inflation starts, real GDP ___________ and the price level _______--

decreases; rises

At a peak in the business cycle, the macroeconomic equilibrium is _____________ than the level of potential real GDP

greater

Over the business cycle, factors such as the quantity of capital, human capital and technology .....

grow but do not fluctuate as much as the quantity of labor employed

The aggregate supply curve illustrates that the

higher the price level, the greater the quantity of real GDP supplied

The _____________, the ___________ is the quantity of rela GDP supplied

higher the price level; greater

The slope of the aggregate supply curve shows that the ___________ the price level, the _____________________

higher; the greater is the quantity of real GDP supplied

Main causes for cost push inflation

increase in the money wage rate increase in the price of raw materials

When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms

increase production and prices

When the investment increases, the ___________ in aggregate demand is _____________ the change in investment.

increase; greater than

If the expected inflation rate increases, aggregate demand

increases

Moving alng the aggregate supply curve, when the price level rises, the quantity supplied

increases

If the fed increases the quantity of money, then aggregate demand

increases and the curve shifts rightward

Other things remaining the same, an increase in the price level

increases the quantity of real GDP supplied

If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is an

inflationary gap

The economy is at full employment. If aggregate demand increases, an

inflationary gap is created and the AS curve shifts leftward as the money wage rate rises.

__________ increases the quantity of real GDP supplied and is shown as a movement along the AS curve

a rise in the price level

True/False A fed raising the interest rate shifts the aggregate demand curve to the left

True

If European economies enter a recession, U.S. aggregate demand

U.S. aggregate demand decreases and the U.S. AD curve shifts leftward.

When the U.S. price level rises relative to other nations' price levels, then....

U.S. exports decrease U.S. imports increase, and there is a movement upward along the aggregate demand curve

Which of the following changes aggregate supply and shits the AS curve? a change in the price of a major resource increases in the amount of capital a change in the money income of consumers

a change in the price of a major resource increases in the amount of capital

Inflation can be started by:

a decrease in aggregate supply or an increase in aggregate demand

A country reports that its price level fell and the money wage rate did not change... These changes led to...

a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied

A rise in the price level produces ____________ the potential GDP line

a movement upward along

Moving along the AS curve, when the price level increases, the real wage rate

falls, and there is an increase in the quantity of real GDP supplied

An economy experiences a recessionary gap. As the economy adjusts to full employment, the money wage rate...

falls, shifting the aggregate supply curve rightward.

If real GDP is less than potential GDP, then money wage rate ___________, and aggregate supply _________ so the price level ______________.

falls; increases; falls

If the price level falls and money wage rate does not change, some firms will ________________ and there is _____________.

shut down; a decrease in the quantity of real GDP supplied

Moving along the potential GDP line, the money wage rate changes by the same percentage as the change in the price level so that the real wage rate......

stays at the full-employment equilibrium level

An increase in __________ increases potential GDP and ___________ aggregate supply

technology; increases