Econ103 Ch 12 Extra Exercises

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

Other things equal, appreciation of the dollar:

decrease aggregate demand in the US and may increase aggregate supply by reducing the prices of imported resources

Which one of the following would not shift the aggregate demand curve?

A change in the price level

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

Aggregate supply decreases and aggregate demand increases

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

An appreciation of the US dollar

Which of the following would most likely shift the aggregate demand curve to the right?

An increase in stock prices that increases consumer wealth

Which of the following would not shift the aggregate supply curve?

An increase in the price level

The real-balances effect indicates that:

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

Other things equal, if the national incomes of the major trading partners of the US were to rise, the US:

aggregate demand curve would shift to the right

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect:

aggregate demand to decrease and aggregate supply o increase

Menu costs:

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

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 aggregate demand curve is:

downsloping because of the interest-rate, real-balance, and foreign purchases effect

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

The determinants of aggregate demand:

explain shifts in the aggregate demand curve is downsloping

Prices and wages tend to be:

flexible upward, but inflexible downward

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

increase US imports and decrease US 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

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

not be possible due to the minimum wage law

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

reduce prices when a decline in aggregate demand occurs

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

Graphically, the full-employment, low inflation, rapid-growth economy of the last half of the 1990s is depicted by a:

rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right

The aggregate supply curve (short run):

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

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:

supply curve to shift to the left

If aggregate demand decrease, 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

If aggregate demand increases and aggregate supply decreases, the price level:

will increase but real output may increase, decrease, or remain unchanged