Chapter 12
Menu costs will:
make prices inflexible downward
If the dollar appreciates in value relative to foreign currencies
aggregate demand decreases
The excess capacity of business rises due to:
demand decreases
If personal income taxes and business taxes decrease, then this will:
increase aggregate demand and aggregate supply
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
increase aggregate demand and decrease aggregate supply
Cost-push inflation occurs because of a:
leftward shift in the aggregate supply curve
Wage contracts, menu costs, and the minimum wage are explanations for why:
wages tend to be inflexible downward
An increase in the real value of stock prices, which is independent of a change in the price level, would affect aggregate demand due to the:
wealth effect
The ratchet effect means that:
when aggregate demand decreases, the price level remains constant
Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50, and the price of each input is $9. The per-unit cost of production is:
$1.50
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The level of productivity in this economy is:
40
Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50, and the price of each input is $9. The level of productivity in this economy is:
6
Which event would most likely increase aggregate demand?
A depreciation of the dollar
Which of the following will cause the aggregate demand curve to shift to the left?
An appreciation in the value of the U.S. dollar
Which would increase aggregate supply?
An increase in business subsidies
Which would be one of the factors that increase aggregate demand?
An increase in consumer wealth
Which combination of factors would most likely increase aggregate demand?
An increase in consumer wealth and a decrease in interest rates
Which set of events would most likely increase aggregate demand?
An increase in incomes in foreign nations and a depreciation of the dollar
Which of the following will lead to an increase in aggregate demand?
An increase in national incomes abroad
Which set of events would most likely decrease aggregate demand?
An increase in personal income tax rates
Which would most likely increase aggregate supply?
An increase in productivity
Aggregate demand decreases and real output falls, but the price level remains the same. Which factor most likely contributes to downward price inflexibility?
Fear of price wars
Which of the following statements about the multiplier is most accurate?
The multiplier applies to both increases and decreases in initial spending
Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50, and the price of each input is $9. If productivity increased such that 400 units are now produced with the quantity of inputs still equal to 50, then per-unit production costs would:
decrease and aggregate supply would increase
A decrease in net exports will cause a(n):
decrease in aggregate demand
An increase in personal income tax rates will cause a(n):
decrease in aggregate demand
An increase in taxes on consumers will most likely cause a(n):
decrease in aggregate demand
Cost-push inflation is characterized by a(n):
decrease in aggregate supply and no change in aggregate demand
When national income in other nations decreases, aggregate:
demand decreases
If the dollar depreciates in value relative to foreign currencies, aggregate:
demand increases
The short-run aggregate supply curve shows the:
direct relationship between the price level and real GDP produced
The short run in macroeconomics is a period in which nominal wages:
do not respond as the price level changes
If a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier:
equals 5
When the price level falls:
holders of financial assets with fixed money values increase their spending
A decrease in business taxes will tend to:
increase aggregate demand and increase aggregate supply
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
increase aggregate supply
If the prices of imported resources decrease, then this event would most likely:
increase aggregate supply
Demand-pull inflation is associated with a(n):
increase in aggregate demand
A decrease in business taxes will most likely result in a(n):
increase in aggregate demand and aggregate supply
A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):
increase in the price level
If Congress passed new laws significantly increasing the regulation of business, this action would tend to:
increase per-unit production costs and shift the aggregate supply curve to the left
If Congress raised taxes on businesses, this action would:
increase per-unit production costs and thus decrease aggregate supply
The aggregate demand curve shows the:
inverse relationship between the price level and real GDP purchased
If the multiplier is 4 and the desired increase in real GDP is $200 billion, the initial change in spending required to achieve that goal:
is $50 billion
Which would shift the aggregate demand curve? A change in:
net export spending
The upward slope of the short-run aggregate supply curve is based on the assumption that:
nominal wages and other resource costs do not respond to price level changes
The vertical slope of the long-run aggregate supply curve is based on the assumption that:
nominal wages and other resource costs do respond to price level changes
One reason why the aggregate supply curve might shift to the left is that:
per-unit production costs have increased
An aggregate supply curve represents the relationship between the:
price level and the production of real domestic output
The aggregate demand curve is the relationship between the:
price level and the purchasing of real domestic output
Which would most likely shift the aggregate supply curve? A change in:
prices of imported resources
Which of these factors would most likely shift the aggregate demand curve? A change in:
profit expectations on investment projects
When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:
ratchet effect
The labels for the axes of an aggregate supply curve should be:
real domestic output for the horizontal axis and price level for the vertical axis
The labels for the axes of the aggregate demand graph should be:
real domestic output on the horizontal axis and the price level on the vertical axis
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. All else equal, if the price of each input decreased from $30 to $20, productivity would:
remain unchanged and aggregate supply would increase
Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50, and the price of each input is $9. If the price of each input decreased from $9 to $7, productivity would:
remain unchanged and aggregate supply would increase
A fall in the price of domestic resources will shift the aggregate:
supply curve rightward
A rise in prices of imported resources will cause aggregate:
supply to decrease
A fall in prices of imported resources will cause aggregate:
supply to increase
If at a particular price level real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:
surplus and the price level will fall
The multiplier can be calculated by dividing:
the change in real GDP by the initial change in spending
The change in real GDP resulting from an initial change in spending equals:
the initial change in spending times the multiplier
The magnification of small changes in spending into larger changes in output and income is produced by:
the multiplier effect
The long-run aggregate supply curve is:
vertical
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
decrease aggregate demand
If personal income taxes and business taxes increase, then this will:
decrease aggregate demand and aggregate supply
An increase in business taxes would tend to:
decrease aggregate demand and decrease aggregate supply
The immediate-short-run aggregate supply curve is:
horizontal
An increase in expected future income will:
increase aggregate demand
Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this output. The per-unit cost of production is:
$0.70
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The per-unit cost of production is:
$0.75
In an economy it costs $1500 to produce 2000 units of output. If the costs increase to $2500, then the per-unit cost of production will have increased from:
$0.75 to $1.25
The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation?
Input prices have increased
Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect?
It would shift the aggregate supply curve left
Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility?
Menu costs
The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?
Net exports have increased
The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?
Raw material prices and wage rates have decreased
A sharp rise in the real value of stock prices, which is independent of a change in the price level, would affect aggregate demand due to:
a change in real value of consumer wealth
Cost-push inflation arises from:
a decrease in aggregate supply
Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to:
a price level that is inflexible downward
The slope of the immediate-short-run aggregate supply curve is based on the assumption that:
both input and output prices are fixed
The long run in macroeconomics is a period in which nominal wages:
change as the price level changes
If households expect prices of consumer goods to decline, this will:
decrease aggregate demand
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
decrease aggregate supply
The passage of new legislation requiring more extensive government regulation of business will most likely:
decrease aggregate supply
A decrease in government spending will cause a(n):
decrease in aggregate demand
The intersection of the aggregate demand and aggregate supply curves determines the:
equilibrium level of real domestic output and prices
Which would be considered to be one of the factors that shift the aggregate supply curve? A change in:
government regulation
If the U.S. dollar depreciates in value relative to foreign currencies, then this will:
increase aggregate demand
An increase in productivity will:
increase aggregate supply
An expected rise in the rate of inflation for consumer goods will:
increase current aggregate demand
An increase in government spending will cause a(n):
increase in aggregate demand
A change in aggregate supply would be caused by a change in:
input prices
A movement along the aggregate demand curve would be caused by a change in:
the price level
A decrease in aggregate supply means:
the real domestic output would decrease and the price level would rise
An increase in aggregate demand would be most likely caused by a decrease in:
the tax rates on household income
Which would most likely increase aggregate supply?
A decrease in the prices of resources
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
decrease aggregate demand and increase aggregate supply
Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. If productivity increased such that 3000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would:
decrease and aggregate supply would increase
Major increases in oil prices in the mid-1970s and in the late 1970s created:
adverse aggregate supply shocks
The amount of real domestic output that will be purchased at each possible price level is best shown by the:
aggregate demand curve
When national income in other nations increase
aggregate demand increases
A decrease in aggregate demand is likely to result from:
an appreciation in the value of the U.S. dollar
In the short run, a decrease in aggregate demand will decrease:
both real output and the price level