Chapter 11 MGH: Aggregate Supply & Demand
Which type of policy prevailed during the 1980s? Multiple choice question. Do nothing Fiscal policy Monetary policy Supply-side policy Eclectic policy
Supply0side policy
True or false: Business cycles are likely to result from recurrent shifts of the aggregate supply and demand curves.
True, because shifts of the aggregate supply or aggregate demand curve can cause upswings and downswings.
The combination of price level and real output where aggregate demand ________ aggregate supply is known as macro equilibrium. is above equals is less than is greater than
equals
When price levels fall, the quantity of real output demanded will ________________ (decrease/increase).
increase
Aggregate _____________ can be represented as a schedule or curve showing the relationship between the price level and the amount of real output that is produced in a given time period.
supply
Keynes argued that a recession might result from which of the following? too little spending taxes are too low too much spending interest rates are too low
too little spending
The United States had a more eclectic policy focus in the: Multiple choice question. 1980s 1990s 1970s 2000s
2000s
The Blank______ saw a return to a more "hands-off" economic policy. Multiple choice question. 2000s 1990s 1970s 1980s
90s
According to what theory does the economy "self-adjust"? Keynesian theory Classical theory Monetarist theory
Classical theory
Which type of policy prevailed during President Obama's term in office? Multiple choice question. Fiscal policy Supply-side policy Eclectic policy Do nothing Monetary policy
Fiscal policy
Which type of policy prevailed during the 1960s? Multiple choice question. Monetary policy Do nothing Fiscal policy Eclectic policy Supply-side policy
Fiscal policy
Inherent market instability is most closely connected to which economic theory? Supply-side Monetarist Keynesian Classical
Keynesian
The determinants of aggregate supply (such as natural disasters, changes in tax policy, etc.) are variables that: Multiple choice question. cause the aggregate demand curve to shift solely change the price level cause the aggregate supply curve to shift cause movement along the aggregate supply curve
cause the aggregate supply curve to shift`
According to _________ economists, the economy self-adjusts to deviations from its long-term growth trend.
classical
An increase in the price of oil due to a conflict will Blank______ per-unit production costs and shift the aggregate supply curve to the Blank______. Multiple choice question. decrease; left increase; left increase; right decrease; right
increase; left
Along the aggregate supply curve, output increases when the price level _____________ (decreases/increases).
increases
If the macro equilibrium is greater than the full-employment output, then the macro problem is:
inflation
President Trump's 2017 tax cut was primarily designed to: Multiple choice question. shift AS to the left shift AD to the right shift AS to the right shift AD to the left
shift AS to the right
Many of President Trump's policy preferences (deregulation and tax cuts to encourage production) can be considered ______ economic policies. supply-side monetary classical fiscal
supply-side
Fiscal policy dominated economic debate in the: Multiple choice question. 1980s 1990s 1970s 1960s
1960s
Which statement defines the real balances effect? A higher price level reduces the purchasing power of the public's accumulated savings balances. 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 quantity of U.S. goods demanded as net exports.
A higher price level reduces the purchasing power of the public's accumulated savings balances.
Which of the following are determinants of aggregate supply? Changes in output prices Changes in business taxes Changes in consumer preferences Changes in infrastructure (such as transportation systems) Changes in essential input prices (such as the price of oil)
Changes in business taxes Changes in infrastructure (such as transportation systems) Changes in essential input prices (such as the price of oil)
___________ unemployment occurs when equilibrium GDP is less than full-employment GDP.
Cyclical
Which of the following is not considered to be a determinant of macro performance? policy levers internal market forces external shocks GDP per capita
GDP per capita
True or false: The Great Depression was a stunning blow to classical theory.
True, because the events of the Great Depression suggested that the economy did not self-adjust.
The potential problems with macro equilibrium are: Undesirability Inflation Disequilibrium Instability
Undesirability Instability
The aggregate supply curve has what general shape? Multiple choice question. Downward sloping Upward sloping Horizontal Vertical
Upward sloping
When the price level is lower than macro equilibrium aggregate demand is equal to aggregate supply aggregate demand is less than aggregate supply aggregate demand is greater than aggregate supply
aggregate demand is greater than aggregate supply
When the price level is lower than macro equilibrium aggregate demand is greater than aggregate supply aggregate demand is equal to aggregate supply aggregate demand is less than aggregate supply
aggregate demand is greater than aggregate supply
Macro equilibrium is the unique combination of price level and real output that is compatible with both Blank______ and Blank______. Multiple choice question. inflation; unemployment aggregate demand; aggregate supply consumption; investment market demand; market supply
aggregate demand; aggregate supply
An increase in asset values that results in an increase in consumer spending is called the real ______ effect. income balances interest trade
balances
When the price level is ______ macro equilibrium, shortages will emerge and sellers will ______. below; raise their prices above; lower their prices below; lower their prices above; raise their prices
below; raise their prices
During the Great Depression, the _____________ (classical/monetarist) self-adjustment mechanism simply did not work.
classical
When the macro equilibrium GDP is less than full-employment GDP, the resulting unemployment is: frictional structural seasonal cyclical
cyclical
Monetary theory is categorized as a(n) Blank______ theory. demand-side supply-side eclectic
demand-side
When the U.S price level rises relative to foreign price levels, U.S. exports will ______ and U.S. imports will ______. rise; fall rise; rise fall; fall fall; rise
fall; rise
The use of government taxes and spending to alter macroeconomic outcomes is known as monetary policy eclectic policy fiscal policy supply-side policy
fiscal policy
If the price level is higher than the equilibrium price level, then the aggregate quantity supplied will be ______ the aggregate quantity demanded. equal to greater than less than
greater than
Because of the classical economists' belief that the economy self-adjusts, they assert that government intervention is necessary is unnecessary can be useful only during expansions can be useful only during recessions
is unnecessary
A demand-side theory that emphasizes the role of money in financing aggregate demand is known as: Multiple choice question. classical theory supply-side theory Say's Law monetary theory
monetary theory
A tax cut will shift the aggregate demand curve to the ____________ (right/left).
right
An important controversy between classical and Keynesian economists is whether market economies are inherently __________.
stable or unstable
The use of tax rates on wages and profits, (de)regulation, and mechanisms such as educating the workforce, to increase the ability and willingness to produce goods and services, is which type of policy? Multiple choice question. fiscal policy supply-side policy eclectic policy monetary policy
supply side policy
Supply-side policy is the use of Blank______ in order to increase the ability and willingness to produce goods and services. Multiple choice question. government spending money and interest rates tax rates and regulation money and spending
tax rates and regulation
What is monetary theory?
the demand-side theory that emphasizes the need for money and credit for financing spending
If labor force participants are unable to find jobs, the economy is experiencing a decrease in aggregate demand an increase in the labor force unemployment full-employment GDP
unemployment
Monetary policy was in the limelight in the: Multiple choice question. 1960s 1970s 1980s 1990s
70s
______ theory, which encourages government spending or tax cuts to stimulate the economy, is the most prominent of the demand-side theories. Multiple choice question. Monetary Supply-side Keynesian Classical
Keynesian
_______ define our nation's economic welfare. Macro outcomes Macro determinants Equilibrium forces Aggregate supply and aggregate demand
Macro outcomes
Which of the following is considered an external shock? Tax policy Population growth Spending behavior Natural disaster
Natural disaster
Which of the following is NOT an internal market force? Changes in interest rates Population growth Natural disasters Spending behavior
Natural disasters
The economists who view economic downturns as temporary setbacks, not permanent problems, are the monetarists. classical economists. Keynesian economists.
classical economists.
Assuming aggregate supply remains unchanged, a decrease in aggregate demand will result in a(n) decreaseBlank 1Blank 1 decrease , Correct Unavailable (increase/decrease) in real GDP.
decrease
When the price level rises, the quantity of real output demanded will _____________ (increase/decrease).
decrease
Along the aggregate supply curve, if the price level increases, then output will rise decline not be affected
rise
Given aggregate demand, if the aggregate supply curve shifts to the left, then the price level will ______ and output will ______. fall; rise rise; rise rise; fall fall; fall
rise; fall
Given aggregate demand, if the aggregate supply curve shifts to the left, then the price level will ______ and output will ______. rise; fall fall; rise fall; fall rise; rise
rise; fall
Aggregate supply and demand curves provide a convenient framework for comparing theories on how the economy works. Macro controversies focus on the Blank______ of aggregate supply and demand curves and the potential to Blank______. Multiple choice question. position; keep them constant shape; keep them constant position; shift them shape; shift them
shape; shift them
Changes in consumer confidence, wealth, or taxes will: cause movement along the aggregate supply curve shift the aggregate supply curve shift the aggregate demand curve cause movement along the aggregate demand curve
shift the aggregate demand curve
Changes in consumer confidence, wealth, or taxes will: Multiple choice question. cause movement along the aggregate demand curve shift the aggregate demand curve cause movement along the aggregate supply curve shift the aggregate supply curve
shift the aggregate demand curve
According to classical economics, the economy is inherently ______ due to flexible wages and flexible prices. unchangeable unstable stable inflexible
stable
When a failure to achieve full employment results from the unwillingness of producers to provide more goods at existing prices ______ economic theories are often implemented. demand-side monetary supply-side Keynesian
supply-side
When the price level is above macro equilibrium, Blank______ will emerge and sellers will Blank______. Multiple choice question. surpluses; raise their prices shortages; lower their prices surpluses; lower their prices shortages; raise their prices
surpluses; lower their prices
The intersection of the aggregate demand and the aggregate supply curves determines the long-run equilibrium price level and the real GDP. the equilibrium real interest rate and the equilibrium real GDP. the equilibrium price level and the equilibrium real interest rate. the equilibrium price level and the equilibrium real GDP.
the equilibrium price level and the equilibrium real GDP.
Because of the classical economists' belief that the economy self-adjusts, they assert that there is no need for government macro intervention policy levers simply will not work, but the government still needs to intervene in the market to guide the adjustment process governments should intervene only to help the adjustment process policy levers are an important part of government
there is no need for government macro intervention
If the macro equilibrium is lower than the full-employment output, then the macro problem is: unemployment inflation
unemployment
Changes in which of the following can shift the aggregate demand curve? Changes in consumer wealth Changes in consumer income taxes Changes in input prices Changes in the overall price level
Changes in consumer wealth Changes in consumer income taxes
Changes in which of the following can shift the aggregate demand curve? Changes in input prices Changes in the overall price level Changes in consumer wealth Changes in consumer income taxes
Changes in consumer wealth Changes in consumer income taxes
The value of total output produced at full employment is called: unemployment equilibrium GDP full-employment GDP equilibrium output
full-employment GDP
Fiscal policy is the use of Blank______ to alter macroeconomic outcomes.
gov't taxes and spending
If the aggregate quantity supplied is greater than the aggregate quantity demanded, then the current price level is Blank______ the equilibrium price level. Multiple choice question. less than the same as greater than
greater than
The foreign trade effect occurs when the U.S. price level __________ (increases/decreases) relative to foreign price levels and the quantity of U.S. goods demanded as net exports decreases.
increases
Which of the following effects does not help explain why the aggregate demand curve is downward sloping? inflation effect foreign trade effect real balances effect interest rate effect
inflation effect
Which of the following effects does not help explain why the aggregate demand curve is downward sloping? real balances effect inflation effect foreign trade effect interest rate effect
inflation effect
The idea that even if the designated macro equilibrium is optimal, it may not last long is the problem of Blank______. The idea that equilibrium price or output level may not satisfy our macroeconomic goals is the problem of Blank______. shortage; macro equilibrium macro equilibrium; shortage undesirability; instability instability; undesirability
instability; undesirability
When a higher price level increases the demand for consumer borrowing, which will drive up the price paid for its use, assuming a fixed money supply, which effect is at work? interest rate effect foreign purchases effect real balances effect money effect
interest rate effect
Which of the following effects help explain why the aggregate demand curve is downward sloping? interest rate effect real balances effect foreign trade effect inflation effect
interest rate effect real balances effect foreign trade effect
A tax increase will reduce consumption and shift the aggregate curve to the leftBlank 1Blank 1 left , Correct Unavailable (right/left).
left
If the aggregate quantity supplied is less than the aggregate quantity demanded, then the current price level is ______ the equilibrium price level. greater than the same as less than
less than
The combination of prices and real output that is compatible with both aggregate demand and aggregate supply is called the real GDP equilibrium inflation-constant equilibrium macro equilibrium micro equilibrium
macro equilibrium
Output, growth, and jobs are among the ______ that define our nation's economic welfare. macro determinants aggregate supply or demand macro outcomes equilibria
macro outcomes
The study of aggregate economic behavior is: macroeconomics aggregate supply economics business cycles
macroeconomics
The idea that small disturbances in output, prices, or unemployment are likely to be magnified, not muted, by the invisible hand of the marketplace is describing aggregate demand aggregate supply inflationary pressures market instability
market instability
Monetary policy refers to the use of Blank______ to influence macroeconomic activity. Multiple choice question. money and interest rates money and business tax rates business tax rates and regulation government taxes and spending
money and interest rates
Unstable outcomes mean that the price-output relationship at equilibrium may not satisfy our macroeconomic goals. once AD and AS reach the full-employment equilibrium, shifts of AD and AS can move the economy away from that equilibrium. AS and AD can never bring an economy close to the full-employment equilibrium. there is a lot of instability on the way to reaching the full-employment equilibrium, but once there, the economy is stable.
once AD and AS reach the full-employment equilibrium, shifts of AD and AS can move the economy away from that equilibrium.
Three of the basic macro outcomes include: output, jobs, and prices output, jobs, and policy levers internal market forces, external shocks, and policy levers policy levers, jobs, and prices
output, jobs, and prices
Aggregate supply is represented as a schedule or curve showing the relationship between the ___________ level and the amount of output produced in the economy.
price
The cornerstones of the classical theory are flexible: profits inflation prices wages
prices wages
According to ______ , a higher price level reduces the purchasing power of the public's accumulated savings balances. international trade effect real balances effect interest rate effect price level effect
real balances effect
According to ______ , a higher price level reduces the purchasing power of the public's accumulated savings balances. real balances effect price level effect international trade effect interest rate effect
real balances effect
What is inflation?
An increase in the average level of prices of goods and services
A natural disaster such as a hurricane that significantly interrupts firms' ability to provide goods and services to the economy at any price will likely cause: A decrease in the price level A reduction in the unemployment rate An increase in real GDP An increase in the price level
An increase in the price level
True or false: Macro equilibrium and full-employment GDP are always equal.
False, because although ideally we would like the two to be the same, often they are not.
______ refers to the quantity of output that could be produced if the labor force were fully employed. Full-employment GDP Macro equilibrium Aggregate supply
Full-employment GDP
Keynesian economists believe which of the following? Supply creates its own demand. Government intervention is necessary. The market is inherently unstable.
Government intervention is necessary. The market is inherently unstable.
Which of the following explains the reason for the upward-sloping aggregate supply curve in the short run? Higher productivity means higher prices are required. Higher prices squeeze a producer's profit margin. Producers charge higher prices to recover higher costs with increased capacity utilization. As output rises, costs fall, especially when the economy is producing beyond full employment.
Producers charge higher prices to recover higher costs with increased capacity utilization.
Which are the three government policy options to combat business cycles? Increase prices to encourage economic growth Shift the aggregate supply curve Do nothing Shift the aggregate demand curve
Shift the aggregate supply curve Do nothing Shift the aggregate demand curve
he mechanisms for shifting the aggregate supply curve in the desired direction are the focus of Multiple choice question. Demand-side theories Supply-side theories
Supply-side theories
A schedule or curve that shows the total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus, is called: aggregate supply aggregate demand aggregate GDP demand
aggregate demand
Aggregate supply and demand curves provide a convenient framework for comparing theories on how the economy works. Macro controversies focus on the shape of Blank______ and the potential to shift them. Multiple choice question. circular flow diagram production possibilities curve aggregate supply and demand curves supply and demand curves
aggregate supply and demand curves
The idea that some costs of production rise when output is increased helps explain why the: aggregate supply curve is downward sloping. aggregate demand curve is downward sloping. aggregate supply curve is upward sloping. aggregate demand curve is upward sloping.
aggregate supply curve is upward sloping.
The aggregate demand curve slopes downward because it reflects: an inverse relationship between the price level and the amount of real output (GDP) demanded a direct relationship between the price level and the amount of real output (GDP) demanded
an inverse relationship between the price level and the amount of real output (GDP) demanded
Keynesian theory is categorized as a ______ theory. supply-side demand-side eclectic monetary
demand-side
The macro failure of unstable outcomes means that even if the designated macro equilibrium is optimal, it may be displaced by macro disturbances. the price-output relationship at equilibrium may not satisfy our macroeconomic goals. there is a lot of instability before reaching the full-employment equilibrium, but once there, the economy is stable. the market mechanism is broken, so an economy can never adjust to full employment.
even if the designated macro equilibrium is optimal, it may be displaced by macro disturbances.
Which of the following are not basic macro outcomes? external shocks jobs and unemployment internal market forces prices policy levers GDP growth
external shocks internal market forces policy levers
The three basic determinants of the macro economy include: jobs external shocks growth policy levers output internal market forces prices international balances
external shocks policy levers internal market forces
Given aggregate supply, if the aggregate demand curve shifts to the left, prices will ______ and output will ______. rise; rise fall; rise rise; fall fall; fall
fall; fall