Economics final Ch.12 - Ch.13
Refer to Figure 12-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?
$100 billion
Refer to Figure 12-3. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?
$100 million
If the marginal propensity to consume is 0.75, the marginal propensity to save is
0.25
Refer to Figure 13-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?
1.8%
Refer to Figure 13-3. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?
A
In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should
shift the short-run aggregate supply curve to the right.
The aggregate expenditure model focuses on the ________ relationship between real spending and ________.
short-run; real GDP
The basic aggregate demand and aggregate supply curve model helps explain
short-term fluctuations in real GDP and the price level.
In the dynamic aggregated demand and aggregate supply model, inflation occurs if
the AD curve shifts more to the right than the LRAS curve.
A negative supply shock in the short run causes
the aggregate supply curve to shift to the left.
The marginal propensity to save is defined as
the change in saving divided by the change in disposable income
The long-run aggregate supply curve will shift to the right if
the economy experiences technological change
Refer to Figure 12-1. If the economy is at a level of aggregate expenditure given by point K, then
the economy is in equilibrium.
Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result
the long-run aggregate supply curve will shift to the right.
If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then
the multiplier is 10
An increase in the price level in the United States will have what effect on the aggregate expenditure line?
Aggregate expenditure will shift downward.
Refer to Figure 13-3. Suppose the economy is at point A. If the economy experiences a negative supply shock, where will the eventual short-run equilibrium be?
B
Refer to Figure 13-3. Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.
B and D
Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?
Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure.
When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.
imports; exports; net exports
Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?
The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
How do lower taxes affect aggregate demand?
They increase disposable income, consumption, and aggregate demand.
Refer to Figure 13-3. Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long-run equilibrium be?
C
Deflation will
increase the quantity of real GDP demanded
A decrease in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.
increase; increase
An increase in the value of which of the following would not increase household wealth?
a credit card balance.
When people became less concerned with the underlying value of their houses and instead focused on the expectations of the prices of their houses increasing, ________ occurred.
a housing bubble
The long-run aggregate supply curve
is vertical
All of the following are components of aggregate expenditure except
actual investment spending
The ________ illustrates the relationship between the price level and the quantity of planned aggregate expenditure, holding constant all other factors that affect aggregate expenditure. Correct!
aggregate demand curve
The ________ shows the relationship between the price level and quantity of real GDP demanded.
aggregate demand curve
A decrease in consumer confidence can put your job at risk if
aggregate expenditures fall
A stock market boom which causes stock prices to rise should cause
an increase in consumption spending.
Which of the following will cause a direct increase in consumption spending?
an increase in disposable income
The international trade effect states that
an increase in the price level will lower net exports.
When aggregate expenditure = GDP
macroeconomic equilibrium occurs.
Which of the following is considered a negative supply shock?
an unexpected decrease in the refining capacity for oil
An increase in the price level results in a(n) ________ in household consumption spending and a(n) ________ in investment spending.
decrease; decrease
When the price level rises from 110 to 115, the aggregate level of GDP supplied rises from $80 billion to $120 billion. This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.
positive; short-run
Full-employment GDP is also known as
potential GDP
Decreases in the price level will
raise consumption because real wealth increases
Potential GDP refers to the level of
real GDP in the long run
If, due to a recession, foreign workers begin to leave the United States to search for temporary work in their home countries until the recession has ended, this will
shift the short-run aggregate supply curve of the home country to the right.
Refer to Figure 12-1. If the economy is in equilibrium, it is at a level of aggregate expenditure given by point
K
The formula for aggregate expenditure is
AE = C + I + G + NX
Refer to Figure 12-1. At point L in the figure above, which of the following is true?
Actual inventories are greater than planned inventories.
Refer to Figure 13-3. Which of the points in the above graph are possible long-run equilibria?
A and C
A decrease in aggregate expenditure has what result on equilibrium GDP?
Equilibrium GDP falls.
An increase in aggregate expenditure has what effect on the equilibrium GDP?
Equilibrium GDP rises.
Refer to Figure 12-1. What will happen next when the economy is at point J?
Inventories have fallen below their desired level, and firms increase production.
Refer to Figure 12-1. If the economy is at point L, what will happen?
Inventories have risen above their desired level, and firms decrease production.
f full-employment GDP is equal to $4.2 trillion, what does the long-run aggregate supply curve look like?
It is a vertical line at $4.2 trillion of GDP.
Refer to Figure 13-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?
It will rise
Refer to Figure 12-1. According to the figure above, at what point is aggregate expenditure greater than GDP?
J
Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?
SRAS and AD do not shift.
Investment spending ________ during a recession, and ________ during an expansion.
declines; increases
An increase in the price level ________ real wealth, which causes consumption to ________.
lowers; decrease
At macroeconomic equilibrium
total spending equals total production.
The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.
total spending; real GDP; the price level
In the long run
un
