Econ Quiz 20

Which of the following shifts short-run aggregate-supply curve to the right?

a decrease in price expectations

Which of the following shifts short-run aggregate-supply curve to the right?

a decrease in the expected price level

Which of the following would decrease the price level?

a decrease in the money supply.

Refer to the figure. If the economy starts at Y, then W represents

a recession

According to classical macroeconomic theory, nominal variables, but not real variables, are affected by changes in the

money supply

Other things the same, if the money supply rises by 5% and people were expecting it to rise by 2%, then some firms have

lower than desired prices, which increases their sales.

An increase in the money supply causes output to rise in the short run.

true

Because some economists do not understand what things change GDP, they cannot predict recessions with a fair amount of accuracy.

true

Stagflation results from continued decreases in aggregate supply.

true

The decline in investment spending accounts for approximately how much of the decline in output during a recession?

two thirds

Which classical economist observed that, when the money supply expanded after gold discoveries, it took some time for prices to rise, and in the meantime, the economy enjoyed higher employment and production?

David Hume

An improvement in technology would cause the long-run aggregate-supply curve to shift

right

If countries that imported goods and services from the United States recovered from recession, we would expect that U.S. net exports would

rise, making aggregate-demand curve shift to the right.

From 2001 to 2005 there was a dramatic change in the price of houses. This change made people feel wealthier and shifted aggregate demand curve to the right. The price of houses must have

risen

If the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left, then the price must have

risen

During a recession, unemployment typically

rises

People will want to buy fewer bonds and the interest rate will rise, as the price level

rises

During expansions,

sales and profits rise

Below are pairs of GDP growth rates and unemployment rates. Economists would not be shocked to see most of these pairs in the U.S. Which pair of GDP growth rates and unemployment rates is not realistic?

-2 percent; 2 percent

A candidate for political office announces the following policies which, she says, economics clearly demonstrates will lead to higher output in the long run: 1. decrease immigration from abroad 2. make trade more open between the U.S. and other countries.

1 shifts long-run aggregate-supply curve to the left, 2 shifts long-run aggregate-supply curve to the right.

During the last half of 2012, the U.S. unemployment rate was above the natural rate and real GDP growth was low. Which of the following is the most likely unemployment rate for this time period?

8 percent

Which of the following would not explain why the aggregate demand curve slopes downward?

A higher price level increases real wealth, which stimulates spending on consumption.

Which of the following rises during expansions?

Both employment and consumer spending

Which of the following rise during a recession?

Both losses and unemployment

The Central Bank of Wiknam decreases the money supply at the same time the Parliament of Wiknam repeals a new investment tax credit. Which of these policies shifts aggregate-demand curve to the left?

Both the money supply decrease and the investment tax credit repeal

Which of the following adjusts to bring aggregate demand and aggregate supply into balance?

Both the price level and the quantity of output

Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply curve is upward-sloping.

False

Which of the following would be included in aggregate demand?

Firms' purchases of newly produced machinery

Refer to the figure. Which of the long-run aggregate-supply curves is consistent with long-run equilibrium?

LRAS2

Refer to the figure. Real GDP is represented by

Line A only

Refer to the figures. Unemployment is represented by

Line X only

Which of the following both shift aggregate-demand curve to the left?

Net exports fall for some reason other than a price change and government purchases fall.

An upward-sloping short-run aggregate-supply curve is represented by which of the following equations?

Quantity of output supplied = Natural level of output + a(Actual price level - Expected price level)

Historical evidence for the U.S. economy indicates that changes in investment over the business cycle are the biggest cause of changes in

Real Gdp

Which of the following is correct?

Sometimes recessions are close together.

Suppose a change in the stock market makes people feel wealthier, increases consumption, and shifts the aggregate-demand curve right. What must have happened in the stock market?

Stock prices increased

How does the aggregate-demand curve shift when increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending?

The curve shifts to the left.

Most economists believe that classical theory describes the world in the long run but not in the short run.

True

Which of the following will both make people buy less?

Wealth falls and interest rates rise

Which of the following is not correct?

When real GDP expands, the rate of unemployment rises.

The quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level is shown on the

aggregate-demand curve

Other things the same, when the government spends less, the initial effect is that

aggregate-demand curve shifts left.

Which of the following would cause prices and real GDP to fall in the short run?

aggregate-demand curve shifts to the left

If businesses in general decide that they have underbuilt and so now have too little capital, their response to this would initially shift

aggregate-demand curve to the right.

An increase in the availability of an important major resource such as oil shifts the:

aggregate-supply curve to the right

Which of the following shifts the short-run but not the long-run aggregate-supply curve left?

an increase in the expected price level

As recessions begin, employment

and income both fall

When U.S. net exports fall, which decreases the aggregate quantity of goods and services demanded, the dollar must have

appreciated.

In the model of aggregate demand and aggregate supply, the GDP deflator measures the

average price level

Suppose that there is a decrease in the costs of production that shifts the short-run aggregate-supply curve right. If there is no policy response, then eventually

because unemployment is low, wages will be bid up and short-run aggregate-supply curve will shift left.

A vertical long-run aggregate-supply curve represents

both the classical dichotomy and monetary neutrality.

Fluctuations in real GDP are caused

by changes in aggregate demand and/or changes in aggregate supply.

Refer to the figure. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

causes the economy to experience a decrease in the unemployment rate.

The belief by most economists that real and nominal variables are essentially determined separately in the long run is characteristic of the ________ model.

classical

Imagine a hypothetical world in which, over the last fifty years, both real GDP and prices have trended downward in most countries. Continuing falls in the level of real GDP and the price level can be explained by

continuing losses in technological ability and continuing decreases in the money supply.

Other things the same, continued losses in technological ability and continued decreases in the money supply would unambiguously lead to

declining real GDP only.

A change in weather patterns that makes farming more difficult would ____

decrease long-run aggregate supply.

A decrease in a supply of oil could ____

decrease long-run aggregate supply.

People hold less money and lend more and the interest rate falls when the price level

decreases

When U.S. net exports rise, which increases the aggregate quantity of goods and services demanded, the dollar must have

depreciated

The separation of real and nominal variables is referred to as the classical a.diseconomy.

dichotemy

According to the classical model, both prices and nominal income would double if the quantity of money

doubled

Real GDP is most commonly used to monitor short-run changes in

economic activity

The long-run aggregate-supply curve shifts left if

either emigration abroad increases or important technology is outlawed.

Although wages, incomes, and interest rates are most often discussed in real terms, what matters most are their nominal values.

false

If aggregate demand and aggregate supply both shift left, we can be sure that the price level is higher in the short run.

false

Increased optimism about the future leads to falling prices and falling unemployment in the short run.

false

Recessions occur at regular intervals and are possible to predict with much accuracy.

false

The aggregate-demand curve shows the quantity of goods and services that firms choose to produce and sell at each price level.

false

The logic of the wealth effect begins with a change in the price level changing the interest rate.

false

When the price level rises,

firms will spend less on new business buildings and business equipment, and households will want to spend less on building new homes.

Other things the same, if the price level is higher than expected, then some firms believe that the relative price of what they produce has

increased, so they increase production.

We need to study a model in which real and nominal variables interact in order to understand how the economy works

in the short run but not the long run.

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will decrease if the price level

increases by less than expected so that firms believe the relative price of their output has decreased.

Which of the following macroeconomic variables is a small part of real GDP, yet accounts for a large share of the fluctuation in real GDP?

investment

Recessions occur at ________ intervals and are ________ to predict with much accuracy.

irregular; almost impossible

If the economy is initially at long-run equilibrium and aggregate demand expands, then in the long run the price level

is higher and output is the same as the original long-run equilibrium.

If there is a natural disaster, the long-run aggregate-supply curve shifts

left

Tax increases shift aggregate-demand curve to the:

left, while increases in government spending shift the aggregate-demand curve to the right.

unemployment

moves in the opposite direction as real GDP

Like real GDP, investment fluctuates, but it fluctuates ________ real GDP.

much more than

Refer to the figure. Y2 represents the

natural level of output

In the short run a decrease in the costs of production makes

output rise and prices fall.

The vertical axis of the aggregate demand and aggregate supply graph has the

price level

When comparing the slopes of the aggregate-demand and aggregate-supply curves to the slopes of demand and supply curves for specific goods and services, the explanations are

quite different for the aggregate curves from the specific market curves.

If wages are sticky, then a smaller than expected increase in the price level

raises the real costs of production, so the aggregate quantity of goods and services declines.

If the government institutes an investment tax credit and decreases income taxes,

real GDP and the price level rise

Suppose the economy is in long-run equilibrium. If there is a decrease in the supply of labor as well as a decrease in the money supply, then we would expect that in the short run,

real GDP will fall and the price level might rise, fall, or stay the same.

During recessions, changes in investment spending are the biggest contributor to changes in

real GDP.

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to ________ the quantity of goods and services they produce.

reduce

A change in weather could ____

shift the long-run aggregate-supply curve.

Refer to the figure. A move by the economy from Z to P3 and Y1 would be consistent with

stagflation

When prices and unemployment rise, such an event is sometimes called

stagflation

The long-run effect of a decrease in household consumption is to lower

the price level and leave real output unchanged.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a large emigration of skilled workers, a major depletion of oil fields, and a major new regulation limiting electricity production. In the short run, we would expect

the price level to rise and real GDP to fall.

Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes lowered. At the same time, Senator B succeeds in getting major restrictions on logging enacted. In the short run

the price level will rise, and real GDP might rise, fall, or stay the same.

Imagine two economies that are identical except that, for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $1,500 billion. It follows that

the price level, but not real GDP is higher in country B.

Most economists believe that real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its persistent trend in

the short run

The idea that nominal wages are slow to adjust to changing economic conditions can explain the ________ slope of the short-run aggregate-supply curve.

upward

The classical view that money does not matter is sometimes described by the saying, "Money is a

veil."