MACRO ECON: Ch. 11-13 Test #2

If the marginal propensity to consume is 0.90​, a ​$50 increase in disposable income will lead to a ​$_____ increase in consumption and a ​$ ____ increase in savings. ​(Enter both responses rounded to two decimal places​.)

* 45 * 5 ^Y/^Y = ^C/^Y + ^S/^Y 1 = MPC + MPS MPS = 1- MPC

In a closed​ economy, the MPC is 0.75. Investment changes by negative 400. The change in equilibrium GDP is ________.

-1,600

National Income/Real GDP​ (Y) ​$12,000 $13,000 $14,000 $15,000 ​$16,000 Consumption​ (C) $6000 ​$6500 ​$7,000 ​$7,500 Saving​ (S) 6000 6500 7000 7500 8000 In the above​ example, the marginal propensity to consume is _______. ​(Enter your response rounded to two decimal​ places.)

0.5

National Income/Real GDP​ (Y) ​$12,000 $13,000 $14,000 $15,000 ​$16,000 Consumption​ (C) $6000 ​$6500 ​$7,000 ​$7,500 Saving​ (S) 6000 6500 7000 7500 8000 In the above​ example, the marginal propensity to save is _______. ​(Enter your response rounded to two decimal​ places.)

0.5

Suppose that autonomous consumption is 1,500​, government purchases are 1,000​, planned investment spending is 500​, net exports are 500​, and the MPC is 0.8. Equilibrium GDP is equal to ​$ ______ ​(Enter your response as an​ integer.)

17500

Find equilibrium GDP using the following macroeconomic model ​(the ​numbers, with the exception of the​ MPC, represent billions of dollars​): C​ = 1,000 ​+ 0.90Y Consumption function I​ = 1,000 Planned investment function G​ = 1,000 Government spending function NX​ = - 500 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition The equilibrium level of GDP is ​$ _____ billion. ​(Round your answer to the nearest billion​ dollars.)

25,000

What is the effect on real GDP of a ​$175 billion change in planned investment if the MPC is 0.65​? ​$ ______ billion. ​(Enter your response rounded to the nearest whole​ number.)

500

What is the effect on real GDP of a ​$175 billion change in planned investment if the MPC is 0.65​? ​$_______ billion. ​(Enter your response rounded to the nearest whole​ number.)

500

Find equilibrium GDP using the following macroeconomic model ​(the ​numbers, with the exception of the​ MPC, represent billions of dollars​): C​ = 1,000 ​+ 0.50Y Consumption function I​ = 1,500 Planned investment function G​ = 1,250 Government spending function NX​ = 100 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition The equilibrium level of GDP is ​$ __________ billion. ​(Round your answer to the nearest billion​ dollars.)

7700

Consider the macroeconomic model shown​ below: C​ = 500 ​+ 0.80Y Consumption function I​ = 1,000 Planned investment function G​ = 1,000 Government spending function NX​ = - 100 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition Fill in the following table. ​(Enter your responses as​ integers.) GDP Aggregate Expend.​ (AE) Unplnd Change in Invent. ​$9,600 ​ A C ​$14,400 B D

A. $10080 B. ​$13920 C. -480 D. 480

Suppose two​ countries, Country A and Country​ B, have a similar real GDP per capita. Country A has an average economic growth rate of​ 2% and Country B has an average economic growth rate of​ 3.3%. In the long​ run, what can we predict about living standards in the two​ countries? A. Country​ B's living standards will increase much more rapidly in the long run. B. Growth rates are not related to living standards. C. The countries will experience similar increases in their living standards. D. Country​ A's living standards will increase much more rapidly in the long run.

A. Country​ B's living standards will increase much more rapidly in the long run.

Strong​ rule-of-law countries grow more rapidly than weak​ rule-of-law countries. What factor will most likely improve economic growth in weak​ rule-of-law countries? A. Political reform B. Capitalism C. Corruption D. Communism

A. Political reform

In the figure at​ right, a​ $20 trillion increase in planned investment increased the AE line from AE 1 to AE 2. ​However, real GDP increased by​ $40 trillion.​ Why? A. The multiplier effect. B. The investment effect. C. The expenditure effect. D. The government purchases effect.

A. The multiplier effect.

Have poor countries been catching up to rich​ countries? A. There has been​ catch-up by some poor but industrialized countries. B. The rich countries are getting poorer and going down to the level of poor countries. C. There has been​ catch-up among all poor countries. D. There has been no​ catch-up by any of the poor countries.

A. There has been​ catch-up by some poor but industrialized countries.

Which of the following causes the​ short-run aggregate supply curve to shift to the​ left? A. an increase in the expected price of an important natural resource B. an increase in productivity C. an increase in the labor force D. a positive technological change

A. an increase in the expected price of an important natural resource

The​ long-run aggregate supply curve is vertical because in the long​ run, A. changes in the price level do not affect potential​ GDP, as potential GDP depends on the size of the labor​ force, capital​ stock, and technology. B. the price level does not​ change, but potential GDP changes its value. C. changes in the price level affect potential GDP via other​ variables, such as the size of the labor​ force, capital​ stock, and technology. D. changes in the size of the labor​ force, capital​ stock, and technology affect the price level but not potential GDP.

A. changes in the price level do not affect potential​ GDP, as potential GDP depends on the size of the labor​ force, capital​ stock, and technology.

If the government raises the amount of​ taxes, holding everything else​ constant, then A. disposable income will decrease. B. disposable income will increase. C. disposable income will remain unchanged. D. government purchases will have to decrease.

A. disposable income will decrease.

At the beginning of a​ recession, aggregate expenditure _______________(a) GDP. As a​ result, firms __________(b) large amounts of unplanned inventory and GDP and employment __________ (c). .

A. falls short of B. accumulate C. decrease

The economic growth model predicts that the A. level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations. B. rich countries will have stagnant growth and will catch up with the poor​ countries, so that there will be a convergence toward a​ "poverty trap." C. level of per capita GDP in poor countries will decrease over time and the poor nations will not be able to catch up with the rich nations. D. level of per capita GDP in rich countries will increase so fast that it will be difficult for poor countries with low income per capita to ever catch up with the rich countries.

A. level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations.

Technological change is ________________ for economic growth than additional capital. A. more important B. Less important

A. more important

Consider each of the following events and then figure out how each of these events will affect the aggregate demand curve. a. An increase in the price level will cause a _________________ the aggregate demand curve. b. An increase in government purchases will cause a _______________ the aggregate demand curve. c. An increase in state income taxes will cause a ________________ the aggregate demand curve. d. An increase in interest rates will cause a _________________ the aggregate demand curve. e. A faster income growth in other countries will cause a _________________ the U.S. aggregate demand curve.

A. movement up along B. rightward shift of C. leftward shift of D. leftward shift of E. rightward shift of

A curve showing the relationship between the price level and the level of aggregate expenditure in the​ economy, holding constant all other factors that affect aggregate​ expenditure, is called A. the aggregate demand curve. B. the autonomous expenditure function. C. the inflation curve. D. the​ price-expenditure curve.

A. the aggregate demand curve.

In the long​ run, a country will experience an increasing standard of living only if A. the country experiences continuing technological change. B. the​ country's labor force increases. C. the​ country's capital stock increases. D. all of the above occur.

A. the country experiences continuing technological change.

Explain how each of the following events would affect the long-run aggregate supply curve. a. The price level increases. Because this is a change in __________, the LRAS curve will ____________. . b. The labor force increases. Because this is a change in ______________, the LRAS will ______________. . c. There is an increase in the quantity of capital goods. Because this is a change in ______________, the LRAS will ______________. . d. Technological change occurs. Because this is a change in ______________, the LRAS will ______________.

A. the price level; not change B. the productive capacity of the economy; shift to the right C. the productive capacity of the economy; shift to the right D. the productive capacity of the economy; shift to the right

If the marginal propensity to consume ​(MPC​) is​ 0.9, how much additional consumption will result from an increase of​ $100 billion of disposable​ income? A. ​$90 billion B. ​$80 billion C. ​$10 billion D. ​$9 billion

A. ​$90 billion

When aggregate expenditure is greater than​ GDP, inventories will​ __________ and GDP and total employment will​ __________. A. ​fall; increase B. ​fall; decrease C. ​rise; increase D. ​rise; decrease

A. ​fall; increase

Consider the macroeconomic model shown​ below: C​ = 750 ​+ 0.50Y Consumption function I​ = 1,000 Planned investment function G​ = 1,000 Government spending function NX​ = 200 Net export function Y​ = C​ + I​ + G​ + NX Equilibrium condition Fill in the following table. ​(Enter your responses as​ integers.) GDP $2,950 $8,850 Aggregate Expenditures​ (AE) A. B. Unplanned Change in Inventories C. D.

A. $4,425 B. $7,375 C. -1475 D. 1475

Fill in the missing blanks in the following table. Assume for simplicity that taxes are zero. National Income/Real GDP​ (Y) ​$12,000 $13,000 $14,000 $15,000 ​$16,000 Consumption​ (C) $6000 ​$6500 ​$7,000 ​$7,500 Saving​ (S) A. B. C. D. E.

A. 6000 B. 6500 C. 7000 D. 7500 E. 8000

Briefly explain why the aggregate expenditure line is upward​ sloping, while the aggregate demand curve is downward sloping. A. Aggregate expenditure is the relationship between output and the price​ level, while aggregate demand is a relationship between spending and income. B. Aggregate expenditure is the relationship between spending and​ income, while aggregate demand is a relationship between output and the price level. C. Aggregate expenditure is the relationship between spending and interest​ rates, while aggregate demand is a relationship between output and factor inputs. D. Aggregate expenditure allows the price level to​ vary, while aggregate demand treats prices as a constant.

B. Aggregate expenditure is the relationship between spending and​ income, while aggregate demand is a relationship between output and the price level.

Suppose two​ countries, Country A and Country​ B, have a similar real GDP per capita. Country A has an average economic growth rate of​ 2% and Country B has an average economic growth rate of​ 3.3%. In the long​ run, what can we predict about living standards in the two​ countries? A. The countries will experience similar increases in their living standards. B. Country​ B's living standards will increase much more rapidly in the long run. C. Growth rates are not related to living standards. D. Country​ A's living standards will increase much more rapidly in the long run.

B. Country​ B's living standards will increase much more rapidly in the long run.

The role of the entrepreneur becomes much more important in the new growth theory -- the endogenous growth model -- than in the traditional economic growth model because A. In the traditional growth​ model, economic growth is caused by an increase in the labor force growth rate. B. In the new growth​ theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies. C. Entrepreneurs supply the funds for capital accumulation in the new growth theory. D. The traditional growth theory focuses on capital accumulation but the new growth theory does not.

B. In the new growth​ theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies.

The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic​ growth, the economic growth model focuses on the causes of increases in​ long-run labor productivity. What are the key factors that determine labor​ productivity? ​(Mark all that​ apply.) A. Efficiency wages B. Quantity of capital per hour worked C. Technological change D. Trade

B. Quantity of capital per hour worked C. Technological change

What is the meaning of the​ 45° line in the​ 45°-line diagram? In the​ 45°-line diagram, the​ 45° line shows A. real consumption spending for varying levels of real GDP. B. all the points where aggregate expenditure equals real GDP. C. the equality of real consumption spending and real GDP. D. real aggregate expenditure for varying levels of real GDP.

B. all the points where aggregate expenditure equals real GDP.

Which of the following causes saving to​ increase? A. an increase in unemployment B. an increase in the interest rate C. an increase in the price level D. an increase in consumption

B. an increase in the interest rate

The new growth theory states that A. growth in labor productivity is a significant factor in bringing about​ long-run growth in real GDP per capita. B. firms will add to an​ economy's stock of knowledge capital by engaging in research and development or by contributing to technological change. C. knowledge capital is subject to decreasing returns at the level of the whole economy but increasing returns at the firm level. D. firms will add to an​ economy's stock of physical capital leading to increases in real GDP but at a increasing rate.

B. firms will add to an​ economy's stock of knowledge capital by engaging in research and development or by contributing to technological change.

Which of the following is a major difference between the​ AD-AS model and the dynamic​ AD-AS model? The dynamic​ AD-AS model assumes A. the economy does not experience​ long-run growth, while the​ AD-AS model assumes there is constant inflation in the economy. B. potential GDP increases​ continually, while the​ AD-AS model assumes the LRAS does not change. C. AD only includes​ consumption, investment, and government​ purchases, while the​ AD-AS model assumes AD includes​ consumption, investment, government purchases and net exports. D. the SRAS is stable and will not​ shift, while the​ AD-AS model assumes the SRAS can only change with an exogenous event such as oil price changes.

B. potential GDP increases​ continually, while the​ AD-AS model assumes the LRAS does not change.

Economic growth will A. be faster if more capital per hour is used because of increasing returns to capital. B. slow down or stop if more capital per hour is used because of diminishing returns to capital. C. not be affected because the key to economic growth is capital accumulation whether there are diminishing returns or not. D. not be sustained if developing countries stop accumulating capital because of diminishing returns to capital.

B. slow down or stop if more capital per hour is used because of diminishing returns to capital.

What relationship is shown by the aggregate supply​ curve? The short run aggregate supply curve shows the relationship in the short run between A. the price level and the quantity of real GDP demanded by firms. B. the price level and the quantity of real GDP supplied by firms. C. the price level and the quantity of capital​ goods: machines, factories and​ buildings, demanded by firms and households. D. the price level and the quantity of real GDP demanded by​ households, firms and the government.

B. the price level and the quantity of real GDP supplied by firms.

If there is an increase in the marginal propensity to consume​ (MPC), then A. the level of consumption expenditures will decrease. B. the value of the expenditure multiplier will increase. C. the increase in the MPC will not affect the equilibrium amount of output in the aggregate expenditure model. D. the value of government purchases will increase.

B. the value of the expenditure multiplier will increase.

When examining economic growth rates throughout​ history, A. the world experienced little to no growth until the industrial​ revolution, after which all of the​ world's economies began to experience real economic growth. B. the world experienced little to no growth until the industrial​ revolution, after which some economies began to experience real economic growth. C. it appears that the world experienced consistent growth since records have been kept. D. almost no growth occurred prior to 1300 AD and then all countries of the world grew at a rapid pace.

B. the world experienced little to no growth until the industrial​ revolution, after which some economies began to experience real economic growth.

What term describes the relationship between real GDP per hour worked and capital per hour​ worked, holding the level of technology​ constant? A. the production possibilities frontier B. the​ per-worker production function C. the​ capital-labor function D. the output growth function

B. the​ per-worker production function

Use the following data to answer the​ question: Y ​= $8,000 C = $6,200 I = $1,500 G = $1,500 NX = ​-$500 The unplanned change in inventories is​ ________ and real GDP will​ ________. A. ​-$700; decrease B. ​-$700; increase C. ​$700; decrease D. ​$700; increase

B. ​-$700; increase

Would a larger multiplier lead to more severe recessions or less severe​ recessions? A. A larger multiplier means that large changes in spending lead to small changes in​ GDP, and thus recessions would be less severe. B. A larger multiplier means that small changes in spending lead to large changes in​ GDP, and thus recessions would be less severe. C. A larger multiplier means that small changes in spending lead to large changes in​ GDP, and thus recessions would be more severe. D. A larger multiplier means that large changes in spending lead to small changes in​ GDP, and thus recessions would be more severe.

C. A larger multiplier means that small changes in spending lead to large changes in​ GDP, and thus recessions would be more severe.

Along the​ per-worker production​ function, what happens to real GDP per hour worked as capital per hour worked​ increases? A. Real GDP per hour worked increases at an increasing rate. B. Real GDP per hour worked decreases at an increasing rate. C. Real GDP per hour worked increases at a decreasing rate. D. Real GDP per hour worked decreases at a decreasing rate.

C. Real GDP per hour worked increases at a decreasing rate.

In the aggregate expenditure​ model, when is planned investment greater than actual​ investment? A. When there is no unplanned change in inventories. B. When there is an unplanned increase in inventories. C. When there is an unplanned decrease in inventories. D. Planned investment always equals actual investment in the aggregate expenditure model.

C. When there is an unplanned decrease in inventories.

Some economies are able to maintain high growth rates despite diminishing returns to capital by using A. a newer production method​ that, if used​ properly, produces increasing returns to capital. B. a larger proportion of​ capital, thereby making their production capital​ intensive, so the sheer volume of capital protects them from diminishing returns to capital. C. better or enhanced​ technology, along with accumulating​ capital; these economies are growing because​ technology, unlike​ capital, is subject to increasing returns. D. a​ labor-intensive technology because​ labor, unlike​ capital, is not subject to diminishing returns.

C. better or enhanced​ technology, along with accumulating​ capital; these economies are growing because​ technology, unlike​ capital, is subject to increasing returns.

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 A. upward sloping because as prices​ rise, consumer wealth​ increases, interest rates​ fall, and exports become more expensive. B. upward sloping for the same reasons as a demand curve for a single product. C. downward sloping because as prices​ rise, consumer real wealth​ declines, interest rates​ rise, and exports become more expensive. D. downward sloping for the same reasons as a demand curve for a single product.

C. downward sloping because as prices​ rise, consumer real wealth​ declines, interest rates​ rise, and exports become more expensive.

The position of the​ long-run aggregate supply​ (LRAS) curve is determined by A. the price level and aggregate demand. B. the price​ level, the available​ technology, and​ "sticky" prices. C. the number of​ workers, the amount of​ capital, and the available technology. D. ​consumption, investment, government​ purchases, and net exports.

C. the number of​ workers, the amount of​ capital, and the available technology.

The multiplier represents the A. total amount of additional increases in investment expenditures from an increase in consumption. B. amount disposable income changes by when there is an increase in consumption. C. total amount of additional increases in consumption spending induced by an initial change in aggregate expenditure. D. amount of additional government purchases created from an increase in investment spending.

C. total amount of additional increases in consumption spending induced by an initial change in aggregate expenditure.

Find equilibrium GDP using the following macroeconomic​ model: C = 1,000 + 0.8Y Consumption function I = 500 Investment function G = 600 Government spending function NX ​= ​-100 Net export function Y = C ​+ I​ + G​ + NX Equilibrium condition A. ​2,000 B. ​8,000 C. ​10,000 D. ​20,000

C. ​10,000

The aggregate expenditure model can be written in terms of four spending categories. Which equation shows the relationship between aggregate expenditure and the four spending​ categories? A. AE​ = C​ + I​ + G - NX B. AE​ = C - I - G - NX C. AE​ = C​ + I - G - NX D. AE​ = C​ + I​ + G​ + NX

D. AE​ = C​ + I​ + G​ + NX

From January 2017 to April 2017​, business inventories increased by $ 7 billion. ​*Real-time data provided by Federal Reserve Economic Data​ (FRED), Federal Reserve Bank of Saint Louis. Can we tell from this information whether aggregate expenditure was higher or lower than GDP during this​ quarter? If​ not, what other information do we​ need? A. Aggregate expenditure was equal to GDP in this quarter. B. There is not enough information to determine the relationship between aggregate expenditure and GDP. C. Aggregate expenditure was greater than GDP in this quarter. D. Aggregate expenditure was less than GDP in this quarter.

D. Aggregate expenditure was less than GDP in this quarter.

New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge​ capital? A. Subsidies B. Patents C. Public education D. All of the above E. A and B only

D. All of the above

The figure to the right illustrates the relationship between weak and strong rule-of-law LOADING... countries and economic growth. In addition to a​ country's failure to enforce​ rule-of-law, what else explains why more​ low-income countries do NOT experience rapid growth as the​ catch-up line​ predicts? A. Lengthy civil wars B. Inability to borrow money needed for investment C. Shortage of childhood vaccinations D. All of the above

D. All of the above

The relationship between the marginal propensity to consume​ (MPC) and the marginal propensity to save​ (MPS) can best be described as A. MPC​ = 1 - MPS. B. MPS​ = 1 - MPC. C. MPC​ + MPS​ = 1. D. All of the above.

D. All of the above.

Why do economic growth rates​ matter? A. When a country sustains high growth​ rates, life expectancy at birth increases. B. High levels of sustained economic growth reduce infant mortality. C. High growth rates coincide with improved living standards. D. All of the above. E. A and C only.

D. All of the above.

What are the four main determinants of​ investment? A. Expectations of future​ profitability, interest​ rates, exchange rate and cash flow. B. Disposable​ income, interest​ rates, taxes and cash flow. C. Expectations of future​ profitability, interest​ rates, disposable income and cash flow. D. Expectations of future​ profitability, interest​ rates, taxes and cash flow.

D. Expectations of future​ profitability, interest​ rates, taxes and cash flow.

What is the effect on​ inventories, GDP, and employment when aggregate expenditure​ (total spending) exceeds​ GDP? A. Inventories​ increase, GDP​ increases, and employment decreases. B. Inventories​ decrease, GDP​ decreases, and employment increases. C. Inventories​ increase, GDP​ increases, and employment increases. D. Inventories​ decrease, GDP​ increases, and employment increases.

D. Inventories​ decrease, GDP​ increases, and employment increases.

How would an increase in interest rates affect​ investment? A. Real investment spending remains unchanged. B. Real investment spending may​ increase, decrease or remain the same depending on the rate of inflation. C. Real investment spending increases. D. Real investment spending declines.

D. Real investment spending declines.

How does technological change affect the​ per-worker production​ function? A. As technological change​ occurs, the economy moves from one point to another along the​ per-worker production function. B. Technological change may or may not affect the per worker production function depending on how it affects the quantity of capital per worker. C. Technological change does not affect the​ per-worker production function. D. Technological change shifts the​ per-worker production function up.

D. Technological change shifts the​ per-worker production function up.

Which of the following causes the​ short-run aggregate supply curve to shift to the​ right? A. a decrease in the capital stock B. an increase in the expected price of an important natural resource C. a higher expected future price level D. a positive technological change

D. a positive technological change

An economy that does not experience increases in technological progress A. will not be able to experience any economic growth even with increases in capital. B. can sustain strong levels of economic growth as long as the economy continues to increase capital. C. will not be able to create economic growth unless the country has an increase in the labor​ force, either by population growth or immigration. D. can experience economic growth by increasing​ capital, however, this will eventually stagnate and the economy will not continue to grow.

D. can experience economic growth by increasing​ capital, however, this will eventually stagnate and the economy will not continue to grow.

The most important determinant of consumption is A. the price level. B. household wealth. C. the interest rate. D. current disposable income.

D. current disposable income.

Aggregate demand​ (AD) is comprised of expenditure components that​ include: A. ​consumption, government​ spending, exports, and labor. B. government​ spending, taxes,​ exports, and labor. C. ​consumption, investment,​ exports, and taxes. D. government​ spending, consumption,​ investment, and net exports.

D. government​ spending, consumption,​ investment, and net exports.

At the​ macro-economy level, A. both knowledge capital and physical capital exhibit decreasing returns. B. both knowledge capital and physical capital exhibit increasing returns. C. physical capital exhibits increasing returns and knowledge capital exhibits decreasing returns. D. knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns.

D. knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns.

The new growth theory differs from the growth theory developed by Robert​ Solow, since A. the Solow growth theory says that the rate of technological change is influenced by how individuals and firms respond to economic​ incentives, whereas the new growth theory leaves technological change unexplained. B. the new growth theory focuses on technological change and the quantity of capital available to workers whereas the Solow growth theory states that accumulation of knowledge capital is a key determinant of economic growth. C. the new growth theory says that physical capital is nonrival and nonexcludable and the Solow growth theory states that knowledge capital is nonrival and nonexcludable and is a key determinant of economic growth. D. the Solow growth theory focuses on technological change and the quantity of capital available to workers whereas the new growth theory states that accumulation of knowledge capital is a key determinant of economic growth.

D. the Solow growth theory focuses on technological change and the quantity of capital available to workers whereas the new growth theory states that accumulation of knowledge capital is a key determinant of economic growth.

What relationship is shown by the aggregate demand​ curve? The aggregate demand curve shows the relationship between A. the price level and the quantity of real GDP demanded by the private​ sector: households and firms. B. the price level and the quantity of real GDP demanded by consumers. C. the price level and the quantity of real GDP produced by firms. D. the price level and the quantity of real GDP demanded by​ households, firms, and the government.

D. the price level and the quantity of real GDP demanded by​ households, firms, and the government.

The slope of the aggregate expenditure line equals A. the slope of the​ 45- degree line. B. the value of the multiplier. C. equilibrium real GDP. D. the slope of the consumption function.

D. the slope of the consumption function.

The equilibrium level of real GDP is 1,000 because...

Planned Aggregate expenditure (1,000) is the same as real GDP (1,000). (or Unplanned change in inventories is 0.)

Suppose that exports become more sensitive to changes in the price level in the United States. That​ is, when the price level in the United States​ rises, exports decline by more than they previously did. This change makes the aggregate demand curve __________.

flatter

In the dynamic aggregate demand and aggregate supply​ model, if aggregate demand increases faster than potential real​ GDP, there will be ___________.

inflation

In the dynamic aggregate demand and aggregate supply​ model, if aggregate demand increases slower than potential real​ GDP, there will be __________.

recession

A technological change will cause the​ long-run aggregate supply curve to _______________________.

shift to the right