MACRO: 13-1
Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C.
- Lower interest rates - Lower taxes - Decrease in the U.S. exchange rate relative to other currencies - Increased consumer optimism
Which of the following factors does cause the aggregate demand curve to shift?
-a change in the expectations of households and firms -a change in foreign variables -a change in government monetary or fiscal policies
Consider the downward-sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point B (a movement up along the AD curve) or from point A to point C (a movement down along the AD curve)? (Mark all that apply.)
-wealth effect -interest rate effect
Which of the following is one explanation as to why the aggregate demand curve slopes downward?
Decreases in the price level raise real wealth and increase consumption spending.
Which of the following statements is correct if real GDP in the United States declined by more during the 2007−2009 recession than did real GDP in Canada, China, and other trading partners of the United States?
Imports to the United States fell more than the U.S. exports, leading to an increase in net exports.
Will the outcome you discussed above result in a movement along the U.S. aggregate demand curve or a shift of the aggregate demand curve? Briefly explain.
Shift of the U.S. aggregate demand curve, because this is not a change in the price level.
German luxury car exports were hurt in 2009 as a result of the recession. How did this decrease in exports affect Germany's aggregate demand curve?
The aggregate demand curve shifted to the left.
Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?
They will shift the aggregate demand curve to the right.
The recession of 2007−2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?
This will shift the aggregate demand curve to the left.
If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?
This will shift the aggregate demand curve to the right.
An increase in the value of which of the following would increase household wealth?
a credit card balance
The international-trade effect refers to the fact that an increase in the price level will result in
a decrease in exports and an increase in imports.
Which of the following would cause a decrease in aggregate demand?
a decrease in government spending -Aggregate demand consists of consumption, investment, government spending, and net exports. As taxes fall, disposable income increases which causes consumption to increase. A lower interest rate will increase investment and consumption. A decrease in the exchange rate raises net exports as U.S. goods become cheaper to foreigners. A decrease in government spending will cause a direct decrease in aggregate demand.
The aggregate demand curve is downward sloping because
an increase in the price level reduces real money holdings, which reduces the amount of expenditures.
The international trade effect states that
an increase in the price level will lower net exports.
From August 2009 to May 2017, the Standard & Poor's Index of 500 stock prices increased by more than 135 percent, while the consumer price index increased by less than 15 percent. These changes would have caused
an increase in the real value of household wealth, which shifted the aggregate demand curve to the right.
How can government policies shift the aggregate demand curve to the right?
by increasing government purchases
A movement from point A to point C could be the result of a
change in the expectations of households.
Consider the two aggregate demand curves in the graph at right. A movement from point A to point B on AD1 could be the result of a
change in the price level
The federal government increases taxes in an attempt to reduce a budget deficit. Because this is a change in ___________ , it will cause a in___________ the aggregate demand curve.
consumption, shift to the left
An economics student makes the following statement: "It's easy to understand why the aggregate demand curve is downward sloping: When the price level increases, consumers substitute into less expensive products, thereby decreasing total spending in the economy." This statement is false because the aggregate demand curve is
downward sloping because as prices rise, consumer real wealth declines, interest rates rise, and exports become more expensive.
Aggregate demand (AD) is comprised of expenditure components that include:
government spending, consumption, investment, and net exports.
The interest rate effect refers to the fact that a higher price level results in
higher interest rates and lower investment.
Deflation will
increase the quantity of real GDP demanded.
Briefly explain whether the combination of other currencies rising against the dollar and stronger economic growth in Asia and Europe had led to an increase or a decrease in U.S. net exports.
increase, because US exports are cheaper
Firms become more optimistic and increase their spending on machinery and equipment. Because this is a change in _______ it will cause a _____ the aggregate demand curve.
investment, shift to the right
Because of the slope of the aggregate demand curve we can say that a decrease in the price level
leads to a higher level of real GDP demanded
An increase in interest rates will cause a __________ the aggregate demand curve
leftward shift of
An increase in the price level will cause a _____ the aggregate demand curve
movement up along
The aggregate demand curve shows the relationship between
price level and output demanded
The U.S. economy experiences 4 percent inflation. Because this is a change in the ___________ it will cause a ____________ the aggregate demand curve.
price level, movement along
A faster income growth in other countries will cause a __________ of the US aggregate demand curve
rightward shift of
An increase in government purchases will cause a _____________ the aggregate demand curve
rightward shift of
Suppose the U.S. GDP growth rate is faster relative to other countries' GDP growth rates. U.S. imports will therefore increase faster than U.S. exports, and this will
shift the aggregate demand curve to the left.
The basic aggregate demand and aggregate supply curve model helps explain
short term fluctuations in real GDP and the price level.
A monetary policy change that causes a decrease in interest rates will result in
the aggregate demand curve shifting to the right.
What relationship is shown by the aggregate demand curve? The aggregate demand curve shows the relationship between
the price level and the quantity of real GDP demanded by households, firms, and the government.
What relationship is shown by the aggregate supply curve? The short run aggregate supply curve shows the relationship in the short run between
the price level and the quantity of real GDP supplied by firms.
If the price level increases, then
there will be a movement up along a stationary aggregate demand curve.
The wealth effect refers to the fact that
when the price level falls, the real value of household wealth rises, and so will consumption
Give the three reasons the aggregate demand curve slopes downward. The U.S. aggregate demand curve slopes downward due to all of the following reasons:
- interest-rate effect, where a change in the price level affects investment. -international-trade effect, where a change in the price level affects net exports. -wealth effect, where a change in the price level affects consumption.
An increase in the price level results in a(n) ___________ in the quantity of real GDP demanded because ___________.
decrease; a higher price level reduces consumption, investment, and net exports.
Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will _____________ exports from the U.S. to Sweden and __________ U.S. aggregate demand.
decrease; decrease
Compared to the U.S. aggregate demand curve, the reason that the demand curve for an individual product, such as bananas, slopes downward is
different, because consumers can substitute between individual products.
When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.
imports; exports; net exports