Macroeconomics Chapter 12

The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the ____

right

The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to ____

rise

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

A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve. -a flattening of -the vertical shape of -a movement along -a shift of

a shift of

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect. -interest rate -international trade -wealth -consumer

wealth

A decrease in aggregate demand with constant aggregate supply results in _____. -full employment -seasonal unemployment -structural unemployment -cyclical unemployment -frictional unemployment

cyclical unemployment

Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at _______. -high levels -full strength -low levels -reduced strength

full strength

Higher expected returns on investment will ______. -decrease the demand for capital and shift the aggregate demand curve to the left -increase the demand for capital and shift the aggregate demand curve to the right -increase the demand for capital and shift the aggregate demand curve to the left -decrease the demand for capital and shift the aggregate demand curve to the right

increase the demand for capital and shift the aggregate demand curve to the right

A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______. -decrease;, right -increase; right -decrease; left -increase; left

increase; left

Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______. -investment spending -government spending -consumer spending -net export spending

investment spending

An increase in real interest rates will ______ investment spending and ______ aggregate demand. -raise; increase -lower; increase -raise; reduce -lower; reduce

lower; reduce

If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates. -national domestic wages; employment -national income abroad; exchange -national domestic income; interest -national wages abroad; investment

national income abroad; exchange

In the immediate short run for aggregate supply, both input and output prices ____. -remain fixed -vary wildly -fluctuate mildly -are identical

remain fixed

In the short run, output prices are ______ and ______ prices are ______. -sticky; input; flexible -flexible; input; sticky -stable; import; high -low; export; unpredictable

flexible; input; sticky

Select all that apply Select all the following that were characteristic of economic conditions in the United States during the 1990s. -Low aggregate demand -Full employment -Strong growth -Decreased productivity -Very low inflation

Full employment Strong growth Very low inflation

Which of the following will increase per-unit costs and reduce short-run aggregate supply? -Lower business taxes -Deregulation -Higher business taxes -Increased subsidies to firms

Higher business taxes

Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy? -The immediate-short-run curve -The short-run curve -The extended-long-run -The long-run curve

The short-run curve

Deflation occurs when there is ______. -a decline in wages -a decrease in unemployment -a recession -a decreasing aggregate price level

a decreasing aggregate price level

Deflation occurs when there is ______. -a decline in wages -a decreasing aggregate price level -a recession -a decrease in unemployment

a decreasing aggregate price level

Investment spending refers to ______. -adding to physical capital -buying stocks and bonds -adding to a 401K -buying foreign bonds

adding to physical capital

The determinants of aggregate supply are variables that ______. -cause movement along the aggregate supply curve -cause quantity supplied to change -cause the aggregate supply curve to shift -solely change the price level

cause the aggregate supply curve to shift

A higher price level ____ the real value or purchasing power of the public's accumulated savings balances. Listen to the complete question

decreases

A decline in the price level is called ____

deflation

New and improved technologies will increase investment spending by ______. -creating excess capacity -reducing labor costs -enhancing expected return on investment -increasing cost of production

enhancing expected return on investment

In the long-run, output prices and input prices are ______. -self-correcting -flexible -fixed -unstable

flexible

In the short run, output prices are ____ and input prices are _____. -inflexible; flexible -flexible; inflexible -inflexible; inflexible -flexible; flexible

flexible; inflexible

Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being ____ than potential GDP.

greater

A higher than expected return on investment will ___ the demand for capital goods.

increase

A rise in consumer wealth will ______ consumer spending. -not affect -decrease -increase

increase

Aggregate demand will rise if consumers expect prices to ____ in the future.

increase

An increase in consumer wealth prompts consumers to decrease savings and ____ spending

increase

If firms are optimistic about future business conditions, investment will ____

increase

Investment spending and aggregate demand will ____ when excess capacity dwindles.

increase

New and improved technology, seen as investment spending by firms will lead to a(n) ____ in aggregate demand

increase

What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply? -foreign prices -input prices -consumption spending -output prices

input prices

When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect. -money -interest-rate -foreign purchases -real-balances

interest-rate

A decline in investment spending at each price level will shift the aggregate demand curve to the ____

left

The short-run is the period in which ______. -input prices are flexible but output prices are fixed or highly inflexible -output prices and input prices are fixed or highly inflexible -output prices and input prices are flexible -output prices are flexible but input prices are fixed or highly inflexible

output prices are flexible but input prices are fixed or highly inflexible

A leftward shift in the aggregate ____ curve leads to cost-push inflation.

supply

Businesses will invest less if: -there is an increase in excess capacity -there is a decrease in real interest rates -business taxes are reduced -they are pessimistic about future business conditions

they are pessimistic about future business conditions

What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels? -Exchange rate -Net exports -Aggregate supply -Aggregate demand

Aggregate supply

Aggregate supply is represented as a schedule or curve showing the relationship between a nation's ____ level (index) and the amount of real domestic output that firms in the economy produce.

price

Total output divided by total inputs is the formula for ____

productivity

What is one result of a decrease in aggregate demand? -Higher expected returns on investment -Recession -Full employment -Potential output is less than actual output

Recession

An input price is a(n) ______ price while an output price makes up the price level. -intermediate -resource -implicit -fixed

resource

Select all that apply Which of the following influence expected returns on investment projects? -Business taxes -Expectations about future business conditions -Total income -Household borrowing -Technology -Degree of excess capacity

Business taxes Expectations about future business conditions Technology Degree of excess capacity

____ spending will fall if firms' outlook on the economy is pessimistic.

Investment

Select all that apply Which of the following are the four components or determinants of aggregate demand? -Productivity -Investment spending -Resource prices -Net export spending -Government spending -Consumer spending

Investment spending Net export spending Government spending Consumer spending

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

True

True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.

True

True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices.

True

A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to ______. -a decline in firms' expected returns -an increase in the general price level -a decrease in long-term interest rates -an increase in firms' expected returns

a decline in firms' expected returns

A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the quantity demanded for real GDP. -upward flexibility -a decrease -an increase -no change

a decrease

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 GDP. -aggregate supply. -aggregate demand. -demand.

aggregate demand.

A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level. -an increase -a decrease -downward flexibility -no change

an increase

A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation -cost-push -cost-pull -demand-pull -demand-push

cost-push

If the government subsidizes the development of alternative energy it will _______. -increase the per-unit production costs and shift the aggregate supply curve to the right -have no effect on the per-unit production cost of the production -decrease the per-unit production costs and shift the aggregate supply curve to the left -decrease the per-unit production costs and shift the aggregate supply curve to the right

decrease the per-unit production costs and shift the aggregate supply curve to the right

A business subsidy will _____ production costs and ______ short run aggregate supply. -increase, increase -increase, decrease -decrease, increase -decrease, decrease

decrease, increase

An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation. -cost-push -quantitative -naturally-induced -demand-pull

demand-pull

When the US price level rises relative to foreign price levels, ______. -foreigners buy more US goods and Americans buy fewer foreign goods -foreigners buy more US goods and Americans buy more foreign goods -foreigners buy fewer US goods and Americans buy fewer foreign goods -foreigners buy fewer US goods and Americans buy more foreign goods

foreigners buy fewer US goods and Americans buy more foreign goods

A higher business tax will ______ per-unit costs and ______ short-run aggregate supply. -increase; increase -decrease; decrease -decrease; increase -increase; decrease

increase; decrease

The equilibrium price level and equilibrium output is determined by the ______. -intersection of the aggregate demand curve and the aggregate supply curve -point at which aggregate demand exceeds aggregate supply -point at which aggregate supply exceeds aggregate demand -intersection of the inflation rate and per-unit production cost

intersection of the aggregate demand curve and the aggregate supply curve

Wage increases shift the aggregate supply curve to the ____

left

A decrease in aggregate demand with constant aggregate supply can result in ______. -expansion -deflation -full employment -recession

recession

Changes in consumer spending, investment, government spending and net export spending will: -cause movement along the aggregate supply curve -shift the aggregate supply curve -cause movement along the aggregate demand curve -shift the aggregate demand curve

shift the aggregate demand curve

The intersection of the aggregate demand and aggregate supply curves determines ______. -the equilibrium real interest rate and equilibrium real GDP -the equilibrium price level and equilibrium real interest rate -the long-run equilibrium price level and real GDP -the equilibrium price level and equilibrium real GDP

the equilibrium price level and equilibrium real GDP

Assuming constant price levels, an initial drop in aggregate demand (AD) results in ______ being at full strength. -the multiplier -a recession -employment -the economy

the multiplier

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

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 lower price level increases the demand for money and interest rates, assuming a fixed money supply. -A higher price level decreases the purchasing power of the publics' accumulated savings balances. -A higher price level increases the purchasing power of the publics' accumulated savings balances. -A higher price level decreases the demand for money and interest rates, assuming a fixed money supply.

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. -A higher price level reduces the quantity of US goods demanded as net exports. -A higher price level increases the purchasing power of the public's accumulated savings balances. -A higher price level increases the demand for money and increases the interest rate.

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

Investment spending refers to purchases of which of the following? -Stocks -Mutual funds -Capital goods -Bonds

Capital goods

Select all that apply Select all of the following factors which can cause net exports to change. -Changes in interest rates -Changes in price level -Changes in national income abroad -Changes in exchange rates

Changes in price level Changes in national income abroad Changes in exchange rates

Select all that apply An increase in the price level results in which of the following effects? -Decrease in the level of consumption -Increase in net exports -Decrease in investments

Decrease in the level of consumption Decrease in investments

Select all that apply What happened to the U.S. economy in the 1990s? -Output fell by 5% annually. -Inflation grew by 5% annually. -GDP grew by 4% annually. -Unemployment fell to 4%.

GDP grew by 4% annually. Unemployment fell to 4%.

What is the result of an increase in the money supply? -Raised interest rate, increased investment and increased aggregate demand -Lower interest rate, increased investment and decreased aggregate demand -Lower interest rate, increased investment and increased aggregate demand -Raised interest rate, increased investment and decreased aggregate demand

Lower interest rate, increased investment and increased aggregate demand

Which of the following enhance the expected returns on investment and thus increase aggregate demand? -An increase in excess capacity -A lower price level -Higher interest rates -An increase in corporate taxes -New and improved technology

New and improved technology

____ is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.

Productivity

Select all that apply Select all the choices that explain what happens with rising price levels. -Consumption spending increases. -Purchasing power drops. -People demand less output. -Real balances drop.

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

Select all that apply Select all the choices that explain what happens with dropping price levels. -Real balances rise. -People demand more output. -Purchasing power drops. -Real balances drop.

Real balances rise. People demand more output.

What will a decrease in US net exports do? -Shift the aggregate demand curve leftward -Shift the aggregate demand curve rightward -Shift the aggregate supply curve rightward -Shift the aggregate supply curve leftward

Shift the aggregate demand curve leftward

What will a rise in net exports do? -Shift the aggregate demand curve to the left -Shift the aggregate supply curve to the right -Shift the aggregate demand curve to the right -Shift the aggregate supply curve to the left

Shift the aggregate demand curve to the right

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

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

An increase in productivity is related to ______. -a reduction in per-unit costs -a decline in efficiency -a shift of the aggregate supply curve to the left -a flattening of the aggregate supply curve

a reduction in per-unit costs

The wealth effect is reflected by ______. -the downward slope of the aggregate demand curve -a rightward shift of the aggregate demand curve -the increases in interest rate to savers -the upward slope of the aggregate demand curve

a rightward shift of the aggregate demand curve

If consumers expect inflation in the near future, consumers will want to buy more products now and ______. -aggregate supply will increase -aggregate demand will increase -aggregate demand will decrease -aggregate supply will decrease

aggregate demand will increase

A wage decrease shifts the ______. -aggregate supply curve to the left -aggregate demand curve to the left -aggregate supply curve to the right -aggregate demand curve to the right

aggregate supply curve to the right

When firms realize that their excess capacity is shrinking, investment spending ______. -will increase, but aggregate demand (AD) will decrease -and aggregate demand (AD) will increase -will decrease, but aggregate demand (AD) will increase -and aggregate demand (AD) will decrease

and aggregate demand (AD) will increase

Consumer wealth is defined as the total value of ______. -total assets -all investments plus the money in the bank minus debt -assets minus the total value of liabilities -all investments plus the money in the bank

assets minus the total value of liabilities

When interest rates are higher, businesses and consumers will: -increase investment spending and interest-sensitive consumption spending. -increase investment spending and decrease interest-sensitive consumption spending. -decrease investment spending and increase interest-sensitive consumption spending. -decrease investment spending and interest-sensitive consumption spending.

decrease investment spending and interest-sensitive consumption spending.

A wage decrease will ____ per-unit production costs and shift the aggregate supply (AS) curve to the ____

decrease, right

An increase in real interest rates will ______ investment spending and ______ borrowing costs. -increase; decrease -decrease; decrease -increase; increase -decrease; increase

decrease; increase

Cyclical unemployment and recession often arise from ____ in aggregate demand.

decreases

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______. -increases; left -increases; right -decreases; left -decreases; right

decreases; left

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

A decrease in investment spending at each price level will shift the aggregate ______. -supply curve to the right -demand curve to the left -supply curve to the left -demand curve to the right

demand curve to the left

The interest rate effect causes the aggregate demand to be ______. -vertical -upward sloping -downward sloping -flat

downward sloping

An increase in productivity ______. -enables more output with limited resources -has no effect on output -enables more output only if more resources are added -decreases output

enables more output with limited resources

Technological advancements will ______ expected returns on investment and ______ aggregate demand. -enhance; increase -decrease; enhance -enhance; decrease -decrease; decrease

enhance; increase

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 ______. -fall; rise -rise; fall -fall; fall -rise; rise

fall; rise

If firms are optimistic about the business outlook, investment will ______ and the investment demand curve shifts _____. -decrease; rightward -increase; leftward -decrease; leftward -increase; rightward

increase; rightward

The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______. -decreases money demand which decreases interest rates and decreases the amount of real GDP -increases money demand which decreases interest rates and decreases the amount of real GDP -increases money demand which increases interest rates and increases the amount of real GDP -increases money demand which increases interest rates and decreases the amount of real GDP

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

If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______. -increases; right -increases; left -decreases; right -decreases; left

increases; right

In the immediate short run ______. -input prices and output prices can vary -input prices and output prices are fixed -input prices are fixed and output prices can vary -output prices are fixed and output prices can vary

input prices and output prices are fixed

In the short run _____. -input prices and output prices can vary -input prices are fixed and output prices can vary -input prices and output prices are fixed -output prices are fixed and input prices can vary

input prices are fixed and output prices can vary

Investment spending depends on the real ____ rate and the expected return from ____

interest investment

If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the _____

left

If consumers increase their saving rate in order to pay off their debts the aggregate demand (AD) curve will shift to the ____

left

The aggregate demand curve will shift to the ____ when there is a reduction in government purchases.

left

Input prices and output prices are flexible in the ____ run

long

An increase in the money supply will ______ the interest rate, increase investment and ______ aggregate demand. -lower; decrease -lower; increase -raise; increase -raise; decrease

lower; increase

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 ______. -not change; interest rate -raise; discount rate -lower; interest rate -lower; discount rate -raise; interest rate

raise; interest rate

Productivity is the measure of the relationship between a nation's level of ______. -nominal output and the amount of resources used to produce that output -nominal output and the amount of labor used to produce that output -real output and the amount of resources used to produce that output -real output and the amount of labor used to produce that output

real output and the amount of resources used to produce that output

The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances. -international-trade effect -price-level effect -interest-rate effect -real-balances effect

real-balances effect

An increase in exports relative to imports will shift the aggregate demand (AD) curve to the ____

right

If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the ____

right

A decline in investment spending at each price level will ______. -shift the aggregate demand curve to the right -shift the aggregate supply curve to the right -shift the aggregate demand curve to the left -shift the aggregate supply curve to the left

shift the aggregate demand curve to the left

An increase in government spending is likely to _____. -have no effect on the aggregate demand curve -shift the aggregate demand curve to the right -move the aggregate supply curve to the left -shift the aggregate demand curve to the left

shift the aggregate demand curve to the right

An increase in investment spending at each price level will ______. -shift the aggregate demand curve to the left -shift the aggregate supply curve to the right -shift the aggregate supply curve to the left -shift the aggregate demand curve to the right

shift the aggregate demand curve to the right

When consumers increase their consumption spending by borrowing, the aggregate demand curve ______. -shifts to the left -does not change -becomes horizontal -shifts to the right

shifts to the right

The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______. -taxes and productivity -subsidies and prices of imported resources -taxes and government regulations -input prices and productivity

taxes and government regulations

Productivity can be illustrated in the formula ______. -total output divided by total labor -total inputs divided by total output -total output divided by total inputs -total labor divided by total output

total output divided by total inputs

The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies ______. -seldom change output levels or price levels -must change output levels before they change price levels -must change price levels before they change output levels -typically change price levels and output levels simultaneously

typically change price levels and output levels simultaneously

An unexpected increase in asset values that results in an increase 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