Macroeconomics: chp 12 & 18

In the long run, workers demand higher wages to compensate for these higher prices. Aggregate supply will ______________ toward the natural rate of unemployment.

shift left

a. The downsloping aggregate demand curve can be explained by

the interest-rate effect, the real-balances effect, and the foreign purchases effect

will shift Aggregate Demand left...

-A widespread fear by consumers of an impending economic depression.

will shift Aggregate Supply left...

-A 12 percent increase in nominal wages (with no change in productivity). -A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output.

Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending...

AD shifts right

has a horizontal line and the price level is fixed...

Immediate short run

has a fixed output and a vertical line

Long run

has a output prices that are flexible, but prices are fixed and an upsloping curve

Short run

A decrease in aggregate supply, with no change in aggregate demand...

The price level rises and real output decreases.

An increase in aggregate demand...

The price level rises rapidly and there is little change in real output.

In the short run, there is probably a trade-off between unemployment and inflation. The government's expansionary policy should reduce unemployment as ___________________ increases.

aggregate demand

The short run as it relates to macroeconomics is a period in which wages

do not respond to price-level changes.

In the long run, an increase in the price level will result in an increase in _____________.

nominal wages

The distinction between the short run and the long run is important in macroeconomics because of the differences in

policy responses.

__________________ aggregate supply curves reflect a direct relationship between the price level and the level of real output.

Short-run

A decrease in aggregate demand...

The price level does not change, but real output declines.

Equal increases in aggregate demand and aggregate supply...

The price level does not change, but real output increases.

Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be __________.

higher than it is now

nominal wages in the long run are fully responsive to changes in the ______________.

price level

Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously. If those changes were caused by only one curve shifting, then those changes are best explained as the result of:

the AD curve shifting left.

Which of the following will shift the aggregate demand curve to the left?

-The government raises corporate profit taxes. -Interest rates rise.

An increase in aggregate demand that exceeds an increase in aggregate supply...

The price level increases somewhat, with a relatively large change in output.

The long-run aggregate supply curve is vertical because the economy's potential output is determined by

the availability and productivity of real resources, not by the price level.

The short-run aggregate supply curve is relatively flat to the left of the full-employment output because

there are large amounts of unused capacity and idle human resources.

The shape of the short-run aggregate supply curve is

upsloping, because wages adjust more slowly than the price level.

will shift Aggregate Demand right...

-An increase in exports that exceeds an increase in imports (not due to tariffs). -A 10 percent across-the-board reduction in personal income tax rates. -The general expectation of coming rapid inflation. -A reduction in interest rates.

will shift Aggregate Supply right...

-new networking technology increases productivity all over the economy -business taxes fall

Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports...

AD shifts left

Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward...

AS shifts left

The explanation for a downsloping aggregate demand curve differs from the explanation for the downsloping demand curve for a single product because

a downsloping, single-product demand curve assumes constant money income such that a lower price causes a substitution of the now relatively cheaper product for those whose prices have not changed.

The multiplier

causes an initial change in spending to generate an even larger change in the aggregate demand curve.

"Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply."-but the magnitude of the ___________________ depends on the economic situation

effect on unemployment depends on the economic situation