ECON FINAL
the foreign purchases, interest rate, and real balances effects explain why the
AD curve is downward sloping
which of the following circumstances can we expect inflation
AS decreases AD increases
In which of the following circumstances can we confidently expect inflation
AS decreases and AD increases
assume the economy is operating at less than full employment. an expansionary monetary policy will cause interest rates to _____ which will ____ investment spending
Decrease;decrease
if the government wants to pursue an expansionary fiscal policy then a tax cut of a certain size will be more expansionary when the
Economy's MPS is small
The lending ability of commercial banks increases when
The fed buys securities in the open area
what describes the cause and effect chain of an expansionary monetary policy?
an increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
an increase in the price level in the AE model would
decrease AE and shift AD right
increase in business taxes will tend to
decrease AS and decrease AD
increase in price of crude oil would most likely
decrease AS in US
with cost-push inflation in the short run, there will be a
decrease in GDP
The sale of government bonds by the federal reserve banks to commercial banks will
decrease the aggregate demand
If the board of governors of the federal reserve system increases the required reserve ratio, this change will
decrease the excess reserves of member banks and thus decrease the money supply
if the dollar appreciates in value relative to foreign currencies, AD
decreases bc NX decrease
If the national incomes of our trading partners decrease, then AD
decreases because NX decreases
when national income in other nations decreases, AD in our economy
decreases because our exports will decrease
when the price level decreases
demand for money falls and interest rate falls
demand pull inflation is illustrated in the short run AS-AD model as a shift of the aggregate
demand to the right
Changes in the national incomes of our trading partners would directly impact our
exports
MPC is defined as:
extra income that a household consumes
during economic recession, taxes tend to
fall and thereby increase aggregate demand
Traditionally the fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the
federal funds rate
supply-side economics focus more than other economists on
how fiscal policy affects aggregate supply
an increase in expected future income will
increase AD
Given a fixed upsloping AS curve, a rightward shift of the AD curve will
increase both price level and real output
demand pull inflation is characterized by
increase in AD and no change in AS
which combination of factors would most likely increase AD
increase in consumer wealth and a decrease in interest rate
what shifts the aggregate demand rightward?
increase in government expenditures or a decrease in taxes
a decrease in crude oil would most likely cause a
increase of AS in US
Congress's passage of new laws significantly increasing the regulation of business would tend to
increase per unit production costs and shift the AS curve to the left
if the national incomes of our trading partners increase, then our AD
increases bc NX increase
what explains the downward slope of the AD curve
interest rate effect
AD curve shows the
inverse relationship between the price level and quantity of real GDP purchased
an increase in personal income taxes would shift the AD to the
left because C will decrease
graphically, cost push inflation is shown as a
left shift of the AS curve
if the government raises the tax rate, the workers get to keep
less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left
the expenditure multiplier concept of the AE model
magnifies the shifts of the AD curve
Lowering the discount rate has the effect of
making it less expensive for commercial banks to borrow to central banks
Some economists argue that
monetary policy should be used to stabilize the economy fiscal policy should be used to stabilize the economy fiscal policy can be used to shift the AD curve
a real-balance effect pertains to the effect of
price changes on AD while the wealth effect refers to the impact of changes in wealth on AD
AD curve/schedule shows the relationship between the total demand for output and the
price level
AS curve represents the relationship between the
price level and the production of real domestic output
Deflation refers to a situation where
price level falls and could be caused b a shift of AD to the left
changes in ___ will not shift the AD curve
productivity rates
changes in which of the following would shift the AS curve
productivity rates
when the general price level in our economy increases, what does NOT occur?
purchasing power of peoples saving will increase
an increase in input productivity will
reduce the equilibrium price level assuming downward flexible prices
a change in the prices of ___ would shift the AS curve
resources
graphically, demand pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve
If the price level decreases, then the AE schedule will shift and this translates to a
shift in AD left
an increase in government spending on goods to build or repair infrastructure
shifts AD to right has a multiplier effect shifts AS to right, but this is more important in long run
a fall in labor costs will cause aggregate
supply to increase
changes in interest rates, ceteris paribus, cause a shift in
the aggregate demand curve, but not the investment demand curve
when a commercial bank borrows from a federal reserve bank
the commercial banks lending ability is increased
when the reserve requirement is increased
the excess reserves of member banks are reduced
the level of GDP, ceteris paribus, will tend to increase when
the federal reserve buys the government securities in the open market
an increase in consumer spending can be expected to shift the AE curve
upward and the AD curve right
a decrease in consumer spending can be expected to shift the AE curve
upward and the AD left