CHAPTER 33 TEST AP MACRO

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When saving declines, the quality of investment will ____, and therefore aggregate demand will _______.

Decrease, decrease

When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.

Decrease, increase

An increase in the price level will _____ the real value of wealth and, as a result, there will be _____ the aggregate demand curve

Reduce; an upward movement along

The wealth effect, interest rate effect, and international trade effect all explain why the

aggregate demand (AD) curve has a negative slope.

The economy is in long-run equilibrium when

aggregate demand intersects both long-run and short-run aggregate supply.

The economy is in short-run equilibrium when

aggregate demand intersects short-run aggregate supply.

The wealth effect is best described as resulting from a(n)

increase in the price level, reducing the real value of wealth.

New computer technologies can be expected to

increase long-run aggregate supply.

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will __________ and output will __________.

increase; increase

You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________.

increase; increase

The aggregate demand curve illustrates the

inverse relationship between the price level and the quantity demanded of real gross domestic product (GDP).

A decrease in aggregate demand is harmful in the short run because ______ but not in the long run because ______.

unemployment rises; the price level falls

The aggregate demand curve is best represented by which of the following equations?

AD= C + I + G + NX

A rise in the price level that leads to a change in the interest rate and therefore to a change in the quantity of aggregate demand, will causeq

An upward movement along the aggregate deman curve

Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point ________ and in the long run to point ________.

B, E

The term "____" cycle is a popular way to describe the recession-expansion pattern followed by the economy.

Business

Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point _______ and in the long run to point _________.

F; E

Which of the following causes an increase in short run aggregate supply?

Firms and workers expect the price level to fall.

When a change in the price level that leads to a change in the quantity of net exports demanded, it is called the ______ effect.

International trade

Which of the following would shift aggregate demand to the right?

Stock market values increase by 20%.

Which of the following would shift aggregate demand to the left?

The value of the dollar increases.

Which of the following is true about recessions in the United States?

They are rarer today than in the past.

The value of one's accumulated assets is best defined as

Wealth

The aggregate demand curve slopes downward because

a higher price level reduces wealth.

A supply shock is defined as

a surprise event that changes a firm's production costs

Suppose that an increase in the price level reduces the value of real wealth, which then causes a reduction in consumption but no change in saving. In this case, there is

a wealth effect but no interest rate effect.

A technological advance leads to a shift in

both short-run and long-run aggregate supply.

Aggregate demand is determined by adding up the spending of

consumers, firms, the government, and foreigners that buy goods and services produced in the United States.

When the price level rises, _____ declines from the wealth effect, ____ declines from the interest rate effect, and _______ decline(s) from the international trade effect.

consumption, investment, and net exports

Input prices affect the firm's _________, and output prices affect the firm's _________.

costs, revenue

The price index used to illustrate the aggregate demand curve is the:

gross domestic product (GDP) deflator.

Adjustments in _________ naturally move the economy toward long-run equilibrium.

price level

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will ______ and the price level will ________.

remain unchanged; decrease

A severe drought hits a country and reduces farm output by 50 percent. This will impact

short-run aggregate supply

A supply shock causes a shift in

short-run aggregate supply

Aggregate demand is about ______ and aggregate supply is about ______.

spending; production

The slope of the short-run aggregate supply curve can be explained by

sticky input prices and flexible output prices.

Shifts in short-run aggregate supply curve are caused by

supply shocks

The relationship between sticky input prices and flexible output prices explains the

the positive slope of the short-run aggregate supply curve.q


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