Ch 8 SmartBook qs

Consider a diagram with the price index (PI) measured on the vertical axis and real domestic output (RGDP) measured on the horizontal. If the AS curve has shifted to the left, then we can say that aggregate supply has . (Insert just one word.)

Blank 1: decreased, declined, dropped, fallen, or diminished

Demand-pull inflation will not occur if aggregate demand (AD) is increasing along the _____ range of the aggregate supply (AS) curve.

Keynesian

The accommodation of economists' differing viewpoints on the concept of full employment results in the aggregate supply (AS) curve having the shape of a backward bending

L.

Which one of the following exchange rate changes reflects a strengthening of the U.S. dollar?

The British pound goes from $1.20 to $1.10.

The amount of goods and services that will be purchased at various price levels is called

aggregate demand.

The backward-bending "L" shape given to the aggregate supply (AS) curve reflects the fact that individual industries in the economy approach full employment

asynchronously.

For full employment to exist, ______ unemployment is assumed to be zero.

cyclical

An increase in the level of prices reduces the purchasing power of monetary assets (cash and securities), causing the aggregate demand curve to be _____ sloping.

downward

Classical economists' view that aggregate supply (AS) is a vertical line derives from their belief that markets are in a constant state of

equilibrium.

The notion that a rise in a country's price level relative to price levels elsewhere will reduce its exports and increase its imports is referred to as the _____ effect.

foreign purchases

The shape given the aggregate supply curve reflects accommodations for differing opinions regarding the nature of

full employment.

According to Keynesian economists, the aggregate supply (AS) curve is best described by a _____ line.

horizontal

For Keynesian economists, the solution to unemployment is to

increase aggregate demand.

If firms employ better technology and become more productive, then aggregate supply will _____, and the AS curve will shift _____.

increase; rightward

If the central bank pursues a lower interest rate policy, we will expect to see a(n) _____ in aggregate demand, with the AD curve shifting _____.

increase; rightward

The idea that higher prices ultimately raise interest rates, reducing both consumption and business investment is referred to as the _____ effect.

interest rate

The positively sloped segment of the backward-bending "L" shape given to the aggregate supply (AS) curve is referred to the _____ range.

intermediate

Aggregate demand shows the quantities of goods and services that will be purchased at different possible _____ levels.

price

Aggregate supply is a measure of the level of real domestic output available at each possible _____ level.

price

Consider a diagram with the price index (PI) measured on the vertical axis and real domestic output (RGDP) measured on the horizontal. If aggregate demand increases, a new AD curve should be drawn to the _____ of the original curve.

right

Consider a diagram with the price index (PI) measured on the vertical axis and real domestic output (RGDP) measured on the horizontal. If aggregate supply increases, a new AS curve should be drawn to the ____ of the original curve.

right

When the foreign currency price of the U.S. dollar rises, the dollar is said to be

stronger.

Because consumption and business investment decline as higher prices push interest rates _____, the aggregate demand curve is _____ sloping.

upward; downward

For classical economists, the aggregate supply (AS) curve is graphed as a _____ line.

vertical

Efforts aimed at influencing the aggregate supply (AS) curve by lowering input prices, reducing regulation, and promoting advances in productivity are collectively referred to as -side economics. (Insert a single word.)

Blank 1: supply

If the government modifies tax rates to create greater incentives for hard work and innovation, the resulting change in aggregate supply (AS) will cause prices to _____ and output to _____.

fall; rise

Suppose the government relaxes the regulatory burden placed upon firms and simultaneously eliminates price floors that artificially raise certain input prices. In this case, the resulting aggregate supply (AS) curve shift causes prices to _____ and output to _____.

fall; rise

Suppose two aggregate demand (AD) curves are drawn together in a diagram with the price index (PI) measured on the vertical axis and real domestic output (RGDP) measured on the horizontal. For the AD curve positioned to the right, real spending at any price index will be _____ than for the AD curve positioned to the left.

higher

The interest rate effect that contributes to aggregate demand having a negative slope comes from the following linkage:

higher prices→higher inflation→higher interest rates→reduced spending

If the government undertakes an effort to rebuild the country's infrastructure (roads, bridges, airports, etc.) and the economy is initially operating along the intermediate range of the aggregate supply (AS) curve, the result will be _____ prices and _____ output.

higher; higher

Suppose the government implements an income tax cut for households. If the economy is operating along the intermediate range of the aggregate supply (AS) curve, the result will be _____ prices and _____ output.

higher; higher

If the aggregate demand (AD) curve shifts rightward after government spending changes, we can deduce that the spending change was a(n)

increase.

Keynesian economists hold the view that the number of people willing to work is always _____ the number of available jobs.

more than

An increase in the domestic price level relative to price levels elsewhere induces expenditure switching everywhere away from domestic goods, thus causing the aggregate demand curve to have a(n) _____ slope.

negative

In a diagram with the price level on the vertical axis and real GDP on the horizontal, aggregate demand is drawn as a _____ sloped line.

negatively

Which one of the following is not a reason why the aggregate demand curve is downward sloping?

public-choice effect

Aggregate demand shows the quantities of _____ domestic output that will be purchased at each possible price level.

real

The measure of the level of _____ domestic output available at each possible price level is called aggregate supply.

real

Unlike classical economists, Keynesians believe that changes in aggregate demand (AD) will only produce changes in

real output.

The idea that wealth in the form cash or securities becomes less valuable as prices rise is known as the _____ effect.

real-balances

If the government decides to weaken (or lessen) the regulations it imposes on businesses, we will expect to see a(n) _____ shift in the AS curve, meaning that aggregate supply has _____.

rightward; increased

According to Keynesian economists, prices and wages in the modern economy exhibit a high degree of

rigidity.

According to the foreign purchases effect, a _____ in the U.S. price level will induce Americans to substitute foreign goods for U.S. goods and, similarly, induce foreigners to substitute their goods for U.S. goods.

rise

A stronger U.S. dollar means that the foreign currency prices of U.S. products have

risen.

The measure of the level of real domestic output available at each possible price level is called aggregate

supply.

True or false: For there to be full employment, the unemployment rate must equal zero.

False

Which one of the following changes would result in some cost-push inflation?

Higher input prices.

Which of the following variables are identified in the textbook as determinants of aggregate supply? (Select all that apply.)

Productivity Input prices Government regulation