Econ chapter 33

The higher the GDP deflator in an economy, the: (i) higher the purchasing power of the currency. (ii) lower the real wealth in the economy. (iii) higher the real wealth in an economy. (iv) more expensive the country's exports.

(ii) and (iv)

If the current GDP of the United States is $1,800 billion, the multiplier is 4, and the government spends $50 billion on new government purchases, what percentage of GDP will this spending approximately be?

11 percent

When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is:

3

Which of the letters in the graph corresponds to the long-run aggregate supply curve?

A

Which event would result in a rightward shift of the aggregate supply curve?

A decrease in the minimum wage makes it feasible to produce greater amounts.

A leftward shift of the aggregate demand curve would occur from which event?

A financial crisis results in a recession and a lack of funds to make purchases.

In the very short run, which scenario describes a business adjusting to an economic shock?

A meatpacking plant reducing its production due to a recent financial shock

Which scenario does the AD-AS model does NOT describe?

A price increase in sunscreen due to increased demand during the summer

The classical dichotomy is defined as the following:

A purely nominal change (like a change in the price level) won't have any effect on real variables in the long run.

Which scenario would the AD-AS model NOT be used to interpret?

A shortage of dairy products resulting in a price increase for ice cream

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand?

All prices adjust, and the economy returns to long-run potential

Which event would lead to an increase and a shift of the aggregate demand?

An 11 percent decrease in income tax

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when corporate taxes rise in the economy?

Both prices and GDP decrease.

The purchase of a toy by a parent for a child's birthday would be categorized as what part of aggregate expenditure?

Consumption

The aggregate demand curve is the relationship between the average price level of the economy and the output that buyers purchase. Which groups are included in measuring purchases for aggregate demand? I. Consumers II. Businesses III. Foreigners buying goods from this country IV. Foreigners buying goods from their country

I, II, and III

Which change(s) would NOT result in a shift of the aggregate demand curve due to the Federal Reserve's response? I. A rise in corporate taxes II. A rise in inflation III. An increase in oil prices due to an embargo

II only

The idea that spending by any one source has a multiplier effect on aggregate expenditure is related to what economic principle?

Interdependence principle

The purchase of new computer parts to increase computational speed would be categorized as what factor of aggregate expenditure?

Planned investment

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Prices decrease, and GDP increases.

If, after an economic shock, a hardware store notices that it is consistently having 20 percent more customers than a year ago, what action will it take in the medium run?

Raise prices

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.

In the AS-AD model, the long run is defined as:

a period of time long enough for businesses to adjust prices and adapt to competitors' decisions.

Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy?

a rise in aggregate supply

In the long run, the output of the economy is determined by:

aggregate supply only.

The AD-AS model is an _____ perspective for analyzing business cycles when compared to _____, which evaluates interest rates, output gaps, and inflationary pressures.

alternative; the Fed model

A lower real interest rate will increase aggregate demand and thus encourage:

an expansion of the business cycle.

In the medium run, an increase in aggregate demand will result in _____ in output

an increase

Mathematically, aggregate expenditure is equal to the sum of:

consumption, planned investment, government purchases, and net exports.

In the long run, once businesses have adjusted to economic shocks, it is expected that the quantity produced will be:

equal to potential output

An increase in spending on infrastructure would be categorized as a(n) _____ response to an economic downturn.

fiscal

Contractionary monetary policy causes a:

higher interest rates, which increases the international price of the dollar and decreases net exports.

If there is a large enough increase in the price of steel so that aggregate supply shifts to the left, then there will be a(n) _____ in the price level and a decrease in _____.

increase; total output

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

increases; boosts; raises

Today, the Federal Reserve moderates the economy by the use of _____ and _____, whereas historically, the Fed relied on changes in the money supply.

monetary polices; interest rates

Using the classical dichotomy, an increase of 10 percent in price levels of the economy will result in no change in the quantity produced because price levels are _____ and quantity produced is a _____.

nominal variables; real variable

A change in aggregate demand, either an increase or a decrease, will result in a large change in _____ and no change in _____ in the very short run.

output; the price level

Sticky prices are defined as:

prices that adjust sporadically and sluggishly to changes in market conditions.

In the long run, only _____ adjust to an economic shock because the aggregate supply curve is _____.

prices; vertical

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

raises; lowers; decreases; lowers

Ceteris paribus, a decrease in imports leads to a:

right shift of the aggregate demand curve

When the government increases spending, a multiplier effect will:

shift the AD curve further to the right than the effect of the spending.

If in 2018, 1 U.S. dollar was worth 120 yen and, in 2019, 1 U.S. dollar was worth 100 yen, then the aggregate supply curve would _____ as the dollar depreciated.

shift to the left

Suppliers initially react to economic shocks by _____. In the long run, suppliers adjust to economic shocks by changing the prices charged and wages paid.

shifting the quantity produced

Changes in aggregate supply are often _____ than changes in aggregate demand because suppliers need to make adjustments such as _____.

slower; changing prices and wages

Tariffs, such as those imposed during trade wars, predominantly shift the aggregate _____ curve because tariffs _____.

supply; raise production costs

In the AD-AS framework, price and quantity are represented by _____, respectively.

the GDP deflator and the real GDP

The multiplier measures:

the extra GDP generated by an extra dollar of spending.

Keynesian economists argue that the economy needs intervention for recessions to be fully corrected; their argument is based on:

the length of the Great Depression and the fact that it took too long to reach the potential output.

Monetary policy is defined as:

the process of setting interest rates in an effort to influence economic conditions.

Aggregate demand and aggregate supply are directly related to ________ because they look at measures such as _____ and average prices.

the whole economy; total output

In the long run, the aggregate supply curve is _____ when graphed with the price level on the vertical axis and quantity of output on the horizontal axis.

vertical