CHP 12 STUDY GUIDE UGH

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases effects

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. The per-unit cost of production in this economy is

$0.10

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

$50 billion

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about:

30 percent

The real-balances effect indicates that:

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

Efficiency wages are:

above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

aggregate demand curve would shift to the right

Menu costs:

are the costs to firms of changing prices and communicating them to customers

In which of the following sets of circumstances can we confidently expect inflation?

aggregate supply decreases and aggregate demand increases

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

an appreciation of the U.S. dollar

The interest-rate effect suggests that:

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

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the:

determinants of aggregate demand

The economy's long-run AS curve assumes that wages and other resource prices:

eventually rise and fall to match upward or downward changes in the price level

Other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right

Prices and wages tend to be:

flexible upward, but inflexible downward

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand

Other things equal, a reduction in personal and business taxes can be expected to:

increase both aggregate demand and aggregate supply

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible

The economy's long-run aggregate supply curve:

is vertical

A decline in investment will shift the AD curve to the:

left by a multiple of the change in investment

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

multiplier effect

Productivity measures:

real output per unit of input

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. All else being equal, if the price of each input increased from $4 to $6, productivity would:

remain unchanged

An increase in net exports will shift the AD curve to the:

right by a multiple of the change in investment

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right

The aggregate demand curve:

shows the amount of real output that will be purchased at each possible price level

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level

The aggregate supply curve (short run):

slopes upward and to the right

The equilibrium price level and level of real output occur where:

the aggregate demand and supply curves intersect

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

the price level is inflexible downward and a recession has occurred

(Consider This) The ratchet effect is the tendency of:

the price level to increase but not to decrease

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. Given an increase in input price from $4 to $6, we would expect the aggregate:

the supply curve to shift to the left

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate:

the supply curve would shift to the left

Per-unit production cost is:

total input cost divided by units of output

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

wage contracts