Chapter 10-HW

Changes in consumption spending play a large role in the business cycle because​ _______ accounts for approximately​ ______ percent of GDP.

consumption​ expenditure; 70

Aggregate demand decreases if expected future​ income, inflation, or profits​ ______. And aggregate demand decreases if fiscal policy​ ______ government expenditure.

decrease decreases

Choose the correct statement. A. The quantity of real GDP demanded depends on the quantity of real GDP supplied. B. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. C. The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports. D. The higher the price​ level, the greater is the quantity of real GDP demanded.

The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports.

A​ ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

Keynesian

Consumers sought the biggest bang for their economic stimulus bucks in​ June, sending the sales of discount merchants such as​ Wal-Mart and Costco surging. ... As the economy remains weak ... shopperslong dash rich and poorlong dash are flocking to discounters for​ low-cost goods. ...​ Wal-Mart Stores Inc. trounced analyst expectations Thursday with a 5.8 percent jump in June​ sales, ... attributing the increase to the​ government's economic stimulus payments. ... The retailer said sales jumped across the board. But the most dramatic increases were in​ entertainment, particularly for​ flat-screen televisions, and​ apparel, especially in swimwear and sportswear. ... Another major​ retailer, the warehouse club Costco​ Wholesale, beat analyst expectations with a 9 percent increase in​ same-store sales for June. ...​ Target, a top competitor to​ Wal-Mart, said that its​ same-store sales edged up 0.4​ percent, well above the 0.5 percent decline projected by analyst consensus. ... The​ ______ macroeconomic school of thought justifies the policy discussed in this news clip.

Keynesian

Which of the following statements about the monetarist view of the macroeconomy is ​incorrect?

Left​ alone, the economy rarely operates at full employment.

Choose the statement that is incorrect. A. Over the business​ cycle, aggregate supply fluctuates around potential GDP. B. Aggregate supply is the relationship between the quantity of real GDP supplied and the price level. C. At any given​ time, the quantity of capital and the state of technology are​ fixed, but the quantity of labor is not fixed. D. The quantity of real GDP supplied is the total quantity of goods and​ services, valued in constant​ base-year (2009)​ dollars, that firms plan to produce during a given period.

Over the business​ cycle, aggregate supply fluctuates around potential GDP.

If an economy is at a​ full-employment equilibrium and a decrease in consumption expenditure​ occurs, the new​ short-run equilibrium is​ _____ and​ _____ gap emerges.

a below​ full-employment equilibrium; a recessionary

At arrow​ 2, the economy is in​ ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

an​ above; right

At arrow 1 in the​ graph, the economy is in​ ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

a​ below; left

An increase in potential GDP increases​ ______.

both​ long-run aggregate supply and​ short-run aggregate supply

Inflation expectations​ "become self-fulfilling" because consumers decide to​ _____, which​ ______.

buy more goods and services at​ today's lower​ prices; increases aggregate demand

A​ ______ macroeconomist believes that the economy is​ self-regulating and always at full employment.

classical

Aggregate demand decreases if monetary policy​ ______ the quantity of money and​ ______ interest rates.

decreases increases

Aggregate demand decreases if fiscal policy​ ______ taxes or​ ______ transfer payments.

increases decreases

Aggregate demand decreases if the exchange rate​ ______ or foreign income ​______.

increases decreases

An increase in expected future income increases aggregate demand. An increase in the expected future inflation rate increases aggregate demand. An increase in expected future profits increases aggregate demand.

increases increases increases

The following events have occurred at times in the history of the United​ States: 1. The world economy goes into an expansion. 2. Canadian businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Starting from a position of​ long-run equilibrium, a world expansion​ ______, and an increase in expected future profits​ ______. Starting from a position of​ long-run equilibrium, an increase in government expenditures​ ______ real GDP and​ ______ the price level.

increases real GDP and raises the price​ level; increases real GDP and raises the price level increases real GDP and raises the price level

Stagflation​ ______.

is a combination of recession and inflation

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve​; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS​ curve; increases

As we move up along the​ short-run aggregate supply​ curve, ______.

the money wage​ rate, the prices of other​ resources, and potential GDP remain constant

Everything else remaining the​ same, an increase in aggregate demand increases​ ______.

the quantity of real GDP supplied

As we move up along the​ long-run aggregate supply​ curve, ______.

the real wage rate remains constant