macro final
Which of the following would cause an increase in the price level in the long run?
Investment increases.
Which of the following is true?
Long-run aggregate supply is independent of the price level.
How will a hurricane in Louisiana that disrupts the oil supply affect U.S. output, price level, and unemployment in the long run?
Output will remain unchanged, price level will remain unchanged, and unemployment will remain unchanged.
An increase in the price of crude oil from $100 a barrel to $200 a barrel will affect
SRAS.
Which of the following would shift aggregate demand to the right?
Stock market values increase by 20%.
The theory of sticky input prices implies that "an increase in the price level in the economy in the short run leads to _______________ in the firm's profit level."
an increase
Assume the economy was experiencing long-run economic growth in the 1990s. Which of the following would give rise to this scenario?
an increase in aggregate demand and aggregate supply
An increase in short-run aggregate supply immediately leads to:
an increase in real wealth and a movement along the aggregate demand curve.
The wealth effect is best described as resulting from:
an increase in the price level reducing the real value of wealth.
A rise in the price level that leads to a change in the interest rate, and therefore to a change in the quantity of aggregate demand, will cause:
an upward movement along the aggregate demand curve.
When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:
an upward movement along the aggregate demand curve.
Business cycles can be readily identified from
A and B
__________ would cause a leftward shift of the aggregate demand curve.
A decrease in foreign income
Which of the following would cause a downward movement along the aggregate demand curve?
A fall in the price level increases savings and lowers interest rates.
_________ would decrease short-run aggregate supply.
A negative supply shock
Which factor could have contributed to the increase in real GDP growth after the 2001 recession?
A tax rebate program designed to give taxpayers a $600 check
The long-run aggregate supply curve is:
vertical because full employment output is independent of the price level. vertical at the level of full employment output.
When prices in the economy have not fully adjusted, we say that:
we are in the short run.
The value of one's accumulated assets is best defined as:
wealth
The value of one's accumulated assets is best defined as:
wealth.
Consider the wealth effect, interest rate effect, and international trade effect. Of these, the __________ effect is the most significant and the __________ effect is the least significant.
wealth; international trade
Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level. This means wages either increase or decrease depending on the percent change in the general price level. In this economy:
business cycles are less severe.
If large emerging economies continue to grow rapidly, we can expect U.S. aggregate:
demand to increase.
When foreign income rises, U.S. aggregate:
demand will shift to the right.
Suppose stock markets in the U.S. have a very successful month, and the indices increase by 10%. As a result, we can expect aggregate ______ to ______.
demand; increase
A rightward shift of the long-run aggregate supply curve means there has been:
economic growth
Refer to the figure below. It is apparent that between 1992 and 2000 the U.S. economy went through the _________ phase of the business cycle.
expansionary
Business-cycle theory focuses on time horizons of less than:
five years.
Which quarter experienced the greatest negative growth rate?
fourth quarter of 2008
The price index used to illustrate the aggregate demand curve is the:
gross domestic product (GDP) deflator.
When a change in the price level leads to a change in saving, this is known as the:
interest rate effect.
When a change in the price level leads to a change in the interest rate and thus a change in the quantity of aggregate demand, it is called the:
interest rate effect.
When firms invest less because people are saving less, it is called the:
interest rate effect.
The ______________ effect helps explain why an increase in the price level causes a decrease in real gross domestic product.
international trade
When a change in the price level leads to a change in the quantity of net exports demanded, it is called the:
international trade effect.
The aggregate demand curve illustrates the:
inverse relationship between the price level and the quantity demanded of real GDP.
Aggregate supply describes a relationship between:
output and prices.
The long-run output of an economy depends on:
resources, technology, and institutions.
Supply shocks cause short-run aggregate supply to:
return to its original position in the long run.
The interest rate effect results from people:
saving less when the price level rises.
A technological advance will
both A and B
A technological advance leads to a shift in:
both short-run and long-run aggregate supply.
A decrease in aggregate demand is harmful in the short run because __________, but beneficial in the long run because __________.
unemployment rises; the price level falls
How many times did the United States operate below its long-run average growth rate in the 1980s?
15
The aggregate demand curve is best represented by which of the following equations?
AD = C + I + G + NX
Short-run equilibrium implies an intersection of ___________, while long-run equilibrium implies intersection of ____________.
AD and SRAS; AD, SRAS and LRAS
__________ would cause a rightward shift of the aggregate demand curve.
An increase in expected income
Which of the following would cause an upward movement along the aggregate demand curve?
An increase in the price level increases the value of real wealth.
If consumers decide to save a larger percentage of their income, it will be:
beneficial in the long run because interest rates will fall.
An increase in the wealth level in China will
Both A and B
Which of the following scenarios will cause a higher price level in the long run?
Consumer wealth increases due to a rise in housing prices
When median home prices rise, the value of real wealth __________ and aggregate demand __________.
increases; increases
Which of the following causes an increase in short-run aggregate supply?
Firms and workers expect the price level to fall.
Which of the following is true about the price level and aggregate supply?
The price level influences aggregate supply in the short run but not in the long run.
Which of the following would cause an increase in long-run aggregate supply?
The stock of capital increases.
Which of the following would shift aggregate demand to the left?
The value of the dollar increases.
Which of the following would cause an increase in employment in the short run?
There is an increase in government spending.
If the price level falls but workers are reluctant to accept a pay cut, this is an example of:
money illusion.
An increase in expected future prices causes:
a decrease in short-run aggregate supply.
A fall in the price level that causes a change in the real value of wealth results in:
a downward movement along the aggregate demand curve.
The aggregate demand curve slopes downward because:
a higher price level reduces wealth.
An increase in short-run aggregate supply could be the result of:
a reduction in expected future prices.
Recent news reports suggest an upswing in U.S. median home prices. This will result in
a rightward shift of the AD curve.
When an economy has a more stable and well-developed financial system, it is reasonable to expect:
a rightward shift of the long-run aggregate supply curve.
According to the interest rate effect, an increase in the price level leads to __________ in the interest rate, and therefore to __________ in the quantity of aggregate demand.
a rise; a fall
A supply shock is defined as:
a surprise event that changes the firm's production costs.
A decrease in the price level will
decrease the interest rate and involve a downward movement along the aggregate demand curve.
The wealth effect, interest rate effect, and international trade effect all explain why the:
aggregate demand (AD) curve has a negative slope.
The economy is in short-run equilibrium when:
aggregate demand intersects short-run aggregate supply.
The model used to study business cycles is the:
aggregate demand-aggregate supply model.
Shifts in the long-run aggregate supply curve are caused by:
changes in labor productivity.
Shifts in the aggregate demand curve are caused by:
changes in spending.
Aggregate demand is determined by adding up the spending of:
consumers, firms, the government, and foreigners that buy goods and services produced in the United States.
Input prices affect the firm's _________, and output prices affect the firm's _________.
costs; revenue
Suppose people are worried about losing their jobs. In the short run, this will:
decrease aggregate demand and output.
An increase in the value of the dollar will:
decrease aggregate demand.
Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________.
decrease; be unaffected
A severe drought hits a country and reduces farm output by 50%. In the short run, this will __________ output and __________ employment.
decrease; decrease
An increase in the price level that reduces the real value of wealth is likely to __________ consumption and __________ saving.
decrease; decrease
Between 2005 and 2010, the bursting of the housing market bubble and the stock market collapse caused changes in real wealth to _______, and aggregate demand and real GDP to _____________.
decrease; decrease
Suppose that many countries in Europe sink into recession. In the short run, output in the United States will __________ and the price level will __________.
decrease; decrease
When saving declines, the quantity of investment will __________, and therefore aggregate demand will __________.
decrease; decrease
An increase in long-run aggregate supply can be expected to _________ the price level and _________ the natural rate of unemployment.
decrease; have no effect on
An increase in the value of the dollar will __________ exports and __________ imports.
decrease; increase
Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.
decrease; increase
Suppose a country's population is aging and the size of the workforce is declining. In the long run, output will _________ and the price level will _________.
decrease; increase
Suppose a hurricane destroys 20% of the capital stock in a country. In the long run, output will _________ and the price level will _________.
decrease; increase
When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.
decrease; increase
If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will __________, output will __________, and employment will __________ in the long run.
decrease; increase; increase
Suppose OPEC members met and decided to increase their oil production (and thus lower prices) for six months. This change will cause many firms' input prices in the U.S. to __________. This change in input prices will cause a _____________ aggregate supply curve.
decrease; shift in the short-run
If short-run equilibrium output is above full employment output, then in the long run input prices will:
increase and output will fall.
Suppose a prolonged war in a country destroys 30% of the capital stock. In the long run, the price level will _________ as _________.
increase; both long-run and short-run aggregate supply decrease
If the price level in the United States falls, all else being equal, U.S. exports will _____________ and U.S. imports will ______________.
increase; decrease
Suppose advances in computer technology lead to a surge in worker productivity. In the long run, output will _________ and the price level will _________.
increase; decrease
Suppose new drilling techniques increase the world oil supply. In the long run, output will _________ and the price level will _________.
increase; decrease
Suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February. Starting in February, these students are likely to __________ spending and __________ saving.
increase; decrease
Suppose there is a surge in stock market values. In the short run, we would expect the price level to __________ and the unemployment rate to __________.
increase; decrease
In the long run, a technological advance that improves communication can be expected to _________ labor productivity and _________ unemployment.
increase; have no effect on
You read a study that predicts that rising oil prices projected for this summer are certain to fuel inflation. Having taken an economics class, due to this expected change in prices, you predict that spending today will _________ and aggregate demand today will _________.
increase; increase
You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________.
increase; increase
You work for Dr. Zhang, the autocratic dictator of Zhouland. After taking an economics course, you decide that devaluing your currency (Zhoullars) is the way to increase GDP. Following your advice, Dr. Zhang orders massive increases in the supply of Zhoullars, which reduces the value of Zhoullars in world markets. Use the AD-AS model and assume the economy was in long-run equilibrium before this change. Remember to consider only this change as you determine your answers. In the short run, the policy will cause the price level to ___________, real GDP to___________, and the unemployment rate to___________.
increase; increase; decrease
A weak dollar will ___________ net exports and shift the AD curve to the _________.
increase; right.
If people expect higher income in the future, then spending today __________ and aggregate demand __________.
increases; increases
If prices fall, then real wealth __________ and the quantity of aggregate demand __________.
increases; increases
All else being equal, as the population ages and many people leave the labor force:
long-run aggregate supply will fall.
When the general price level rises and firms decide not to change their prices in the short run, this can be attributed to:
menu costs.
Suppose a country's population is growing due to immigration. In the long run, output will _________ due to _________.
ncrease; an increase in both long-run and short-run aggregate supply
If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling, then the short-run aggregate supply curve would be:
nearly vertical.
Which of the following does NOT determine a country's ability to produce goods and services in the long run?
price level
Unemployment rises and real gross domestic product (GDP) growth slows during the:
recession phase of a business cycle.
The OPEC oil embargo of 1973 may have contributed to the _______ of 1973 and _______ in real GDP caused by ____ in aggregate supply.
recession; decrease, a decrease
If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:
remain unchanged.
If the price level rises by 10%, then all else being equal, the long-run quantity of aggregate supply will:
remain unchanged.
Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will __________ and the price level will __________.
remain unchanged; decrease
If inflation turns out to be higher than expected, this will:
shift short-run aggregate supply to the left.
Suppose that the economy is in long-run equilibrium. A sudden shift to which curve will eventually result in a new long-run equilibrium where the price level is exactly the same as it was initially?
short-run aggregate supply
A severe drought hits a country and reduces farm output by 50%. This will impact:
short-run aggregate supply.
A supply shock causes a shift in:
short-run aggregate supply.
Business cycles examine ______________ time horizons, while growth theory focuses on _____________ time horizons.
short-run; long-run
Aggregate demand is about _________ and aggregate supply is about _________.
spending; production
The slope of the short-run aggregate supply curve can be explained by:
sticky input prices and flexible output prices.
Input prices are _________ in the short run and _________ in the long run.
sticky; flexible
When inflation pushes up prices in the economy, input prices are _________ and revenues _________ in the short run.
sticky; increase
Shifts in the short-run aggregate supply curve are caused by:
supply shocks.
Beginning in 1991, improvements in technology led to increases in aggregate ____ and caused real GDP to _____.
supply; increase
When decision makers have time to fully adjust to changes in the overall price level, we refer to this as:
the long run.
When an economy experiences economic growth:
the long-run aggregate supply curve shifts to the right.
The relationship between sticky input prices and flexible output prices explains:
the positive slope of the short-run aggregate supply curve.
Adjustments in _________ naturally move the economy toward long-run equilibrium.
the price level
Suppose housing values fall during a recession. In the short run:
the price level will fall as we move down the short-run aggregate supply curve.
If the current short-run equilibrium level of output is less than full employment output, we can then expect that in the long run:
the price level will fall.
If the current short-run equilibrium level of output is greater than full employment output, we can then expect that in the long run:
the price level will rise and short-run aggregate supply will fall.
All else being equal, an increase in _________ would shift the long-run aggregate supply curve to the left.
the rate at which capital depreciates
An aggregate demand/aggregate supply model is used to study
the theory of business cycles.
An increase in aggregate demand is beneficial in the short run because __________, but harmful in the long run because __________.
the unemployment rate falls; the price level rises
An economy has experienced a rightward shift of its long-run aggregate supply curve and is now producing on that new long-run aggregate supply curve. It is reasonable to expect that:
the unemployment rate has been unaffected.
Suppose that an increase in the price level reduces the value of real wealth, which then causes a reduction in consumption but no change in saving. In this case:
there is a wealth effect but no interest rate effect.
How many recessions have there been in the United States since 1982?
three
An increase in aggregate demand is harmful because:
workers with sticky wages are paying more for goods and services.
