Macroeconomics

According to the "Phillips Curve" explaining the relationship between inflation and unemployment, what will happen when spending decreases?

Inflation decreases

According to the Phillip's Curve, there is ______ relationship between inflation and the employment rate.

a negative

If unemployment falls below the full-employment level of GDP, inflation will begin to_______ because wages begin to ________.

accelerate; increase

At the new level of output, is the economy above, below or at the full employment level of output?

at full-employment

Compare the following two situations. Both have rapidly rising aggregate spending. However, economy A is experiencing rapidly rising productivity; economy B is experiencing no or little change in productivity. In economy A, we would expect _________ inflationary pressures and ________ output than in economy B.

Lower; more

Which of the following expressions does not describe the full employment level of output?

Non-accelerating inflation rate of real GDP

What happens to aggregate demand and aggregate supply if the price of an important input increases?

There is no change in aggregate demand but aggregate supply decreases.

If the economy is currently at full employment, what will be the short-run effect of an increase in saving?

a decrease in real GDP, a decrease in the price level

An increase in wages will cause a shift in the ________

aggregate supply

Assume the economy is at full employment. As increase in government spending will have which of the following effects over time?

an increase in real GDP and prices, followed in the long run by a period of decreasing real GDP and increasing prices

An increase in investment spending can ultimately cause _______ in the aggregate demand curve, ______ in the aggregate supply curve, and _______ in the potential level of GDP.

an increase, an increase, an increase

If the short-run equilibrium in the economy results in real GDP being less than potential GDP, which of the following changes will most likely occur?

falling wages will cause falling prices and rising employment

Compare two possible situations: I. Current real GDP is above the full employment level of real GDP. II. Current real GDP is below the full employment level of real GDP. Given the two situations above, in which will the change take place more rapidly?

faster in situation I

In our aggregate demand and supply model, an increase in wages (and nothing else changes) will cause ______ prices and _______ unemployment.

higher; lower

An increase in the labor force will have which of the following results? Aggregate supply will _______. Potential Real Gross Domestic Product will.........

increase; increase

In economy A, we are in the middle of a recession. In economy B, we are experiencing a demand-pull inflation. Assume that total spending increases in both economies. The real GDP level in economy A will _________. The real GDP level in economy B will ____________.

increase; increase

Assume the economy is currently at full employment. Now suppose there is an increase in U.S. exports. The price-level in the short run will __________; the price-level in the long run will ___________.

increase; increase again

Inflation can result from a change in aggregate demand or a change in aggregate supply. How can one tell which of the two has caused inflation?

inflation caused by demand is accompanied by rising GDP, while inflation caused by aggregate supply comes with relatively low real GDP

An economy which is producing at its potential level of GDP has just experienced a quadrupling of oil prices. What will happen as a result?

inflation will increase and unemployment will increase. eventually prices will come back down and employment will rise

Why will an economy return naturally to the potential level of Gross Domestic Product more quickly from an output level greater than the full-employment level then an output level less than the full-employment level?

it takes longer for wages to fall than it does for wages to increase

In economy A, we are in the middle of a recession. In economy B, we are experiencing a demand-pull inflation. Assume that total spending increases in both economies. Economy A's price level will change by _______ economy B's price level. Economy A's real GDP will change by ________ economy B's real GDP. L

less than; more than

Compare two economies, A and B. Everything is the same expect economy A is in recession, and economy B is at full employment. Assume that consumption spending increases. Economy A's price level will change by ______ than economy B's price level. Economy A's real GDP will change by ________ than economy B's GDP level.

less, more

The Phillips Curve shows the ___________ short-run relationship between inflation and unemployment.

negative

Which of the following expressions does not describe the natural rate of unemployment?

potential unemployment

What happens to the price level as a result of an increase in spending?

price increases

Stagflation is characterized by which of the following?

rising inflation and rising unemployment

If the economy is in a recession, which of the following is true?

short-run equilibrium output is less than the full employment level of output

Compare two possible situations: I. Current real GDP is above the full employment level of real GDP II. Current real GDP is below the full employment level of real GDP. Which of the following is most likely?

wages will rise in situation I and fall in situation II