Intro to Macroeconomics

How can the effect of an unexpected decline in asset values on aggregate demand best be described?

A decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left.`

Which of the following explain the reasons for the downward slope of the aggregate demand curve?

A higher price level decreases the purchasing power of the publics' accumulated savings balances.

How is the real-balances effect defined?

A higher price level reduces the purchasing power of the public's accumulated savings balances.

Select the two stages of changes in aggregate demand.

A multiplier effect that magnifies a change in spending to produce a larger ultimate change in aggregate demand. A change in a determinant that causes an initial change in the amount of real GDP demanded.

Which of the following are determinants of aggregate demand?

Change in consumer wealth Change in investment spending

An increase in the price level results in which of the following effects?

Decrease in the level of consumption Decrease in investments

True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded

False

Which of the following are the four components or determinants of aggregate demand?

Investment spending Government spending Consumer spending Net export spending

Select all the choices that explain what happens with dropping price levels.

People demand more output. Real balances rise.

Select all the choices that explain what happens with rising price levels.

Purchasing power drops. Real balances drop. People demand less output.

Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?

The level of consumption increases, investment increases, and net exports increase.

Why does the substitution effect fail to explain the downward slope of the aggregate demand curve?

The substitution effect does not work when prices fall together in groups.

Which statements summarize why the income and substitution effects do not explain the downward sloping aggregate demand curve?

When the general price level falls, the substitution effect on domestically produced goods is not applicable. When the general price level is lower, there is not necessarily an increase in nominal income.

The wealth effect is reflected by ______.

a rightward shift of the aggregate demand curve

A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called

aggregate demand.

Consumer wealth is defined as the total value of ______.

assets minus the total value of liabilities

According to the foreign purchases effect, an increase in U.S. domestic price levels will _____ (one word) net export

decrease

When interest rates are higher, businesses and consumers will:

decrease investment spending and interest-sensitive consumption spending.

A higher price level _____ the real value or purchasing power of the public's accumulated savings balances.

decreases

Aggregate _____ is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.

demand

Factors that, if they change, shift the aggregate demand curve, are known as ______ of aggregate demand.

determinants

The "other things" that change and shift the aggregate demand curve are called the _____ of aggregate demand or aggregate demand shifters.

determinants

The interest rate effect causes the aggregate demand to be ______.

downward sloping

Other things being equal, according to the aggregate demand curve, a decrease in the price level will increase the amount of aggregate _____.

expenditure

When the price level rises, real GDP demanded will _____.

fall

The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.

false

When the price level rises, real GDP demanded increases.

false

When the US price level rises relative to foreign price levels, ______.

foreigners buy fewer US goods and Americans buy more foreign goods

At any amount of nominal balances, a person's real balances will be ______ if the price level drops and ______ if the price level rises.

higher; lower

A rise in consumer wealth will ______ consumer spending.

increase

Fill in the blanks to complete the sentence. When price levels fall, the quantity of real GDP demanded will ______.

increase

When price levels fall, real GDP demanded will _______.

increase

The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______.

increases money demand which increases interest rates and decreases the amount of real GDP

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.

interest-rate

The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______.

inverse

The downward sloping aggregate demand curve indicates that there is a(n) _____ relationship between the price level and real GDP

inverse

The second stage of changes in aggregate demand is a ______.

multiplier effect that produces a larger change in aggregate demand

Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______.

raise; interest rate

If you liquidate all of your assets and use the money to buy products, the real output you can purchase at current prices makes up your ______.

real balances

The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.

real-balances effect

The foreign purchases effect occurs when the US price level _____ relative to foreign price levels and the quantity of US goods demanded as net exports decreases.

rise

Changes in consumer spending, investment, government spending and net export spending will:

shift the aggregate demand curve

A decrease in borrowing by consumers for consumption spending will ______.

shift the aggregate demand curve to the left

Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.

true

True or false: A change in the price level will change the amount of aggregate demand and the amount of real GDP demanded.

true

An unexpected increase in asset values that results in an increase in consumer spending is called the _____ effect.

wealth

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.

wealth

The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer _____.

wealth