macro quiz 10/29
aggregate demand increases if monetary policy _______ the quantity of money and ______ interest rates.
increases; decreases
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases; decreases real GDP below
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
Aggregate demand increases if expected future income, inflation, or profits ______. And aggregate demand increases if fiscal policy ______ government expenditure.
increases; increases
What does the aggregate demand curve show? What factors change and what factors remain the same when there is a movement along the aggregate demand curve? A movement along the aggregate demand curve occurs if _______.
the price level changes and all other factors remain unchanged
What does the aggregate demand curve show? What factors change and what factors remain the same when there is a movement along the aggregate demand curve? The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______ when everything else remains the same.
the price level
Choose the correct statement. A. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. B. The higher the price level, the greater is the quantity of real GDP demanded. C. The quantity of real GDP demanded depends on the quantity of real GDP supplied. D. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
D
Does economic growth result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply? Economic growth results from ______.
a growing supply of labor and increasing labor productivity, which increases long-run aggregate supply
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve? A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
Does inflation result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply? Inflation results from ______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
Describe three types of short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP exceeds potential GDP is _____ equilibrium. And one in which real GDP is less than potential GDP is _____ equilibrium.
an above full-employment; a below full-employment
The U.S. price level rises. This event _______.
decreases the quantity of real GDP demanded
the U.S. price level rises. This event ______.
decreases the quantity of real GDP demanded
Aggregate demand increases if fiscal policy ______ taxes or ______ transfer payments.
decreases; increases
aggregate demand increases if the exchange rate ______ or foreign income ______.
decreases; increases
how do a decrease in transfer payments and a decrease in taxes change aggregate demand? aggregate demand _______ when a decrease in transfer payments occurs. aggregate demand _______ when a decrease in taxes occurs.
decreases; increases
Inventory Investment Decreases When real GDP increased in the first quarter of 2017, consumption expenditure, exports, and fixed investment increased but business inventory investment fell. Source: Bureau of Economic Analysis, June 29, 2017 Explain how a fall in inventories influences aggregate demand. A fall in inventories _______ aggregate demand because _______.
decreases; investment decreases
Long-run macroeconomic equilibrium occurs when real GDP _____ potential GDP - equivalently, when the economy is on its _____ curve.
equals; LAS
A below full-employment equilibrium is an equilibrium in which potential GDP _____ real GDP.
exceeds
When potential GDP _____ real GDP, the output gap is called a recessionary gap.
exceeds
An above full-employment equilibrium is an equilibrium when real GDP _____.
exceeds potential GDP
the graph shows an aggregate demand curve. suppose there is a decrease in transfer payments. draw a new curve to show the effect of this change on aggregate demand. Label the new curve. C1. now suppose that there is a decrease in taxes. Draw a new curve to show the effect of this change on the original AD curve. Label the new curve C2.
image
When Canada sets new environmental standards that require power utilities to upgrade their production facilities, Canada's aggregate demand _______.
increases
an increase in expected future profits ________.
increases aggregate demand today
The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in expected future income. Label it.
increases aggregate demand today; increases aggregate demand today AD1 is to the right of set line
How do fluctuations in aggregate demand and short-run aggregate supply bring fluctuations in real GDP around potential GDP? Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap.
increases real GDP above potential GDP; an inflationary
Autoworkers agree to a lower money wage rate. This event _______.
increases the quantity of real GDP demanded
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand. Automotive firms in the United States switch to a new technology that raises productivity. This event _______.
increases the quantity of real GDP demanded
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand. Toyota and Honda build additional plants in the United States. This event _______.
increases the quantity of real GDP demanded
autoworkers agree to a lower money wage rate. This event ______.
increases the quantity of real GDP demanded.
Canada trades with the United States. Explain the effect of each of the following events on Canada's aggregate demand. When the government of Canada cuts income taxes, Canada's aggregate demand _______. When the United States experiences strong economic growth, Canada's aggregate demand _______.
increases; increases
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
The graph shows an economy's long-run aggregate supply curve. The economy is at a full-employment equilibrium. Draw an aggregate demand curve and a short-run aggregate supply curve. Label them. Draw a point at the short-run equilibrium.
midline point. criss cross line. top line: SAS. bottom line: AD
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
Why does the aggregate demand curve slope downward? The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
On what does the quantity of real GDP supplied depend? The quantity of real GDP supplied depends on the _______.
quantity of labor employed, the quantity of physical and human capital, and the state of technology
The gap between ______ is the output gap. When _____, the output gap is called an inflationary gap.
real GDP and potential GDP; real GDP exceeds potential GDP
When _____ there is a full-employment equilibrium.
real GDP equals potential GDP
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same.
real GDP; price level
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
real GDP; price level
Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve.
real GDP; real GDP; AD; SAS
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium.
rises; decreases
Which of the following economies is facing a stagflation?
the European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level
Which of the following statements illustrate monetary policy?
the Fed has raised the federal funds rate by 0.3 percent.
Which of the following statements illustrate fiscal policy?
the US government has proposed a hike in the corporate tax rate.
When does potential GDP increase? Potential GDP increases when _______.
the full-employment quantity of labor increases