Aggregate Demand (Chapter 11

Which of the following best describes the relationship illustrated by the aggregate demand (AD) curve? The inverse relationship between the price of a good and the quantity demanded of that good (Choice B) It shows that there is no relationship between the price level and the amount of output demanded B It shows that there is no relationship between the price level and the amount of output demanded (Choice C) The inverse relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world C The inverse relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world (Choice D) The positive relationship between the price level and the quantity of total output produced by firms and households D The positive relationship between the price level and the quantity of total output produced by firms and households (Choice E) The positive relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world E The positive relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world

(Choice C) The inverse relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world C The inverse relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world

The real-balances (wealth), and interest-rate, effects all help explain: ) why the aggregate demand curve is downsloping. B) why the aggregate supply curve is upsloping. C) shifts in the aggregate demand curve. D) shifts in the aggregate supply curve.

) why the aggregate demand curve is downsloping

Name the main areas of the Gov't Budget are their percentages? (Hint: Total of 4)

-SSI (30%) - Medicare (25%) - Household Income (40%) - Corporate Taxes (5%)

What is the growth rate of Medical expenses (express in percentages?)

80% per year

What is the Formula for Aggregate Demand? What percentage do Consumption and Investment make up?

AD = C + I + G + (X-M) (same as GDP) C= 70% and I= 18%

Which curve shows the relationship between the price level and the quantity of goods and services demanded by households, firms, government, and the rest of the world? A- Demand Curve B- Supply Curve C- AD Curve D- PPC Curve E- SRAS Curve

AD curve

If Aggregate Demand exceeds Aggregate Supply at a full employment level of output, there will be: A. unemployment. B. inflation. C. a federal budget deficit. D. stagflation.

B. inflation.

Other things equal, an improvement in productivity will: A) shift the aggregate demand curve to the left. B) shift the aggregate supply curve to the left. C) shift the aggregate supply curve to the right. D) increase the price level.

C) shift the aggregate supply curve to the right.

Assume that the economy in question is open to international trade. The aggregate demand (AD) curve shows the relationship between the price level and the quantities demanded of goods and services by which of the following? A- Households, Firms, Gov't B- Households Firms, Rest of the World C- Households, firms, the government, and the rest of the world D- Households, firms, the government, the rest of the world, the stock market

C- Households, firms, the government, and the rest of the world

When the price level increases, goods in other countries are relatively cheaper. As a result, a country's imports increase, displacing the demand for domestic production. What is the term for the relationship described above? A- The Real Wealth Effect B- Sticky Wage Theory C-Exchange Rate Effect D- Misconceptions Theory E- Interest Rate Effect

C-Exchange Rate Effect

All else equal, a decrease in the supply of labor will result in: A. decreases in AS which will increase the price level and output. B. increases in AS which will decrease the price level and output. C. decreases in AS which will increase the price level and decrease output. D. decreases in AS which will decrease the price level and output. E. increases in AS which will decrease the price level and increase output.

C. decreases in AS which will increase the price level and decrease output.

Which of the following would not shift the aggregate supply curve? A) an increase in labor productivity B) a decline in the price of imported oil C) a decline in business taxes D) an increase in the price level

D) Increase in the Price Level

A Increase in Interest Rates would cause AD to (increase/decrease)?

Decrease (given that people have less take home pay to spend)

What happens when Gov't Spending is less than taxes?

Demand decreases, economy contradicts, budget surplus

What happens when Gov't Spending is greater than taxes? (Hint the demand, budget, and economy are affected)

Demand increases, Economy Expands, Budget Deficit

A technological change that permanently lowered energy costs would cause the: A. AD curve to shift to the right. B. AD curve to shift to the left. C. price level to fall while output grew. D. AS curve to shift to the right. E. AS curve to shift to the left.

E. AS curve to shift to the left (due to decreased cost of production)

A decrease in taxes would cause AD to (increase/decrease)? Give reasons why?

Increase (given the detrimant income will be higher, think take home pay)

Which of the Following Would Cause a Decrease in Aggregate Demand? And What Parts are affected? A- Increase in Gov't Spending B- Increase in Consumption Spending C- Increase in Consumer Cofidence D- Increase in Exports E- Increase in Interest Rates

Increase in Interest Rates Affected: Consumption and Investment

What happens when Gov't Spending is equal to taxes?

No Change in AD, Economy stays neutral, the budget is balanced

A recessionary gap is the amount by which A- Potential GDP exceeds real GDP B- Potential GDP exceeds Nominal GDP C- Nominal GDP exceeds Potential GDP D- Real GDP Exceeds potential GDP

Potential GDP exceeds real GDP

A change in any of the following factors could cause the aggregate demand curve to shift except: A- Monetary Policy B- Fiscal Policy C- Expectations D- Price Level

Price Level

When the economy experiences a combination of recession and inflation, the situation is called A- Inflanatory Gap B- Recessionary Gap C- Stagflation D- Hyperinflation

Stagflation

Which of the following is not a component of aggregate demand (AD)? A. Gov't Spending B. Consumption C. Net Exports D. Investment E. Wages

Wages

The interest-rate effect suggests that: (Hint: the components of price level, demand, interest rate, and consumption are effected. Say whether they tend to increase or decrease)

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

What is Medicare (in simple terms)

federal health insurance for anyone ages 65 or older

What is the definition for sticky wage theory? (hint the words: nominal and economic are used)

nominal wages slowly adjust to changing economic conditions

What is the real wealth effect? (hint the word's change and consumption, wealth, and price are used)

the change in consumption brought about by a change in real wealth that results from a change in the price level

The Average American pays how much in taxes?

90K

Which one of the following would not shift the aggregate demand curve? A) a change in the price level B) depreciation of the international value of the dollar C) a decline in the interest rate at each possible price level D) an increase in personal income tax rates

A) Change in Price Level (simply represents a movement along the curve, because there is an inverse relationship between the price level and aggregate quantity demanded.)

The real-balances (wealth) effect indicates that: an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B) a lower price level will decrease the real value of many financial assets and therefore reduce spending. C) a higher price level will increase the real value of many financial assets and therefore increase spending. D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

How does a decrease in the price level affect real wealth and aggregate demand? A- Real Wealth Decreases, Quanity of Aggregate Demand Increases B- Real Wealth Increases, Aggregate Demand Increases C- Real Wealth Decreases, Quanity of Agg D Decreases D- Real Wealth Increases, Quanity of Aggregate Demand increases

D- Real Wealth Increases, Quanity of Aggregate Demand increases