Macro Test #3

Because of the multiplier effect, the aggregate demand curve will shift to the right _________ the intitial decrease in taxes.

by the same amount as

everyone fights over control of a countries main natural resource

"Curse of the Natural Resource"

Final good prices change in Short or Long run?

Short Run (SRAS)

Curve with a positive slope because as prices of final goods and services rise, prices of inputs ride more slowly

Short Run Aggregate Supply

Why can we say that a decrease in the price level leads to a higher level of real GDP demanded?

Slope of the Aggregate Demand Curve

Price level has decreased but businesses are slow to change the prices of their products, people buy less of the products, and firms must reduce their production

Sticky Price Theory

People don't like when you reduce their pay, regardless of what the price level is

Sticky Wage Theory

3 reasons why SRAS Curve slopes up

Sticky Wage/Price Theories, Misperceptions Theory

The long-run aggregate supply curve will shift to the right if?

Technology improves

How does increased pessimism affect the aggregate demand curve

shift to the left

The long-run aggregate supply curve is?

vertical

*AD-AS Model* Suppose the Fed lowers the discount rate. this situation would be depicted as a movement from

A to B

*AD-AS Model* Suppose the economy is in a recession and expansionary fiscal policy is pursued. this would be depicted as a movement from

A to B

*AD-AS Model* Suppose the economy is in short-run equilibrium below the potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. This would be depicted as movement from

A to B

*Using AD-AS Model* Suppose the economy is in a recession and the fed pursues an expansionary monetary policy. This would be depicted as a movement from

A to B

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

Aggregate Demand Curve

*AD-AS Model* an increase in taxes would be depicted as a movement from

B to A

*AD-AS Model* Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. The correct Fed policy for this situation would be depicted as a movement from

C to B

Suppose the government spending multiplier is 2. The federal government cuts spending by $40 Billion. What is the change in GDP if the price level is NOT held constant?

Decrease of less than $80 billion

refers to the Federal Reserve's increasing the money supply and decreasing interest rates to increase real GDP

Expansionary Monetary Policy

bubonic plague shifted to the left, everyone has 14 kids shifts to right, cheaper college would shift to right, rise in tuition shift to left

Factors that potentially shift the LRAS curve

What will move the economy up along a stationary aggregate demand curve?

Increase in Price Level

Intermediate prices change in Short or Long run?

Long Run (LRAS)

People mistake a fall in the general price level for a fall in "their" price level. Ex. Price level falls 5% for everyone, but it falls for wheat farmers first. Because of this, the wheat farmer might think he needs to start growing a different crop

Misperceptions Theory

Federal Reserve takes to manage money supply and interest rates to pursue its macroeconomic policy objectives

Monetary Policy

Four factors that contribute to productivity

Physical Capital, Human Capital, Natural Resources, Technological Knowledge

Who determines Fiscal Policy?

President and Congress

If policy makers implement an expansionary fiscal policy but do nit take into account the potential for crowding out, the new equilibrium level of GDP is likely to be what?

above potential GDP

A decrease in private expenditures as a result of an increase in government purchases is called?

crowding out

a decline in private expenditures as a result of an increase in government purchases

crowding out

Congress and the President carry out fiscal policy through changes in

government purchases and taxes

skills, training, knowledge

human capital

tools/ buildings/ etc. that you use to produce things

physical capital

The short-run aggregate supply curve has a

positive slope

measure of how much value a worker can produce in a time period

productivity