Chapter 11 test bank

increase U.S. exports and decrease U.S. imports.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:

aggregate demand curve would shift to the right.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

total input cost divided by units of output.

Per-unit production cost is:

eventually rise and fall to match upward or downward changes in the price level.

The economy's long-run AS curve assumes that wages and other resource prices:

is vertical.

The economy's long-run aggregate supply curve:

the aggregate demand and supply curves intersect.

The equilibrium price level and level of real output occur where:

determinants of aggregate demand.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the:

reduce prices when a decline in aggregate demand occurs.

The fear of unwanted price wars may explain why many firms are reluctant to:

increase U.S. imports and decrease U.S. exports.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

moves the economy along a fixed aggregate demand curve.

The foreign purchases effect:

horizontal.

The immediate-short-run aggregate supply curve is:

both input and output prices are fixed.

The immediate-short-run aggregate supply curve represents circumstances where:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The interest-rate effect suggests that:

$2.

The per unit cost of production in the economy described above is:

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

The real-balances effect indicates that:

why the aggregate demand curve is downsloping.

The real-balances, interest-rate, and foreign purchases effects all help explain:

total output depends on the volume of spending.

The shape of the immediate-short-run aggregate supply curve implies that:

input prices are fixed, but output prices are flexible.

The short-run aggregate supply curve represents circumstances where:

diminished if inflation occurs.

The size of the multiplier associated with an initial increase in spending will be:

75

What percentage of the average U.S. firm's costs are accounted for by wages and salaries?

reduce worker morale and work effort, and thus lower productivity.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

not be possible due to the minimum wage law.

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

firms individually may fear that their price cut may set off a price war.

When aggregate demand declines, the price level may remain constant, at least for a time, because:

wage contracts.

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

A decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward.

Which of the following is a true statement?

When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

Which of the following is incorrect?

An appreciation of the U.S. dollar.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

An increase in stock prices that increases consumer wealth.

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in the price level

Which of the following would not shift the aggregate supply curve?

an increase in the price of imported resources

Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left?

a change in the price level

Which one of the following would not shift the aggregate demand curve?

ratchet effect.

(Consider This) The idea that the price level readily moves upward but not downward is called the:

the price level to increase but not to decrease.

(Consider This) The ratchet effect is the tendency of:

significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades.

(Last Word) In recent years:

the composition of GDP has changed from larger, heavier items such as earth movers and steel products toward smaller, lighter items such as software and microchips.

(Last Word) Relative to previous decades, the U.S. economy is less affected by changes in the price of oil partly because:

The amount of energy consumed in producing each dollar of GDP has greatly declined.

(Last Word) Which of the following is a reason why changes in the price of imported oil have less of an effect on the U.S. economy than in the 1970s and early 1980s?

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

Other things equal, appreciation of the dollar:

left by a multiple of the change in investment.

A decline in investment will shift the AD curve to the:

less flexible is the economy's price level.

A decrease in aggregate demand will cause a greater decline in real output the:

productivity.

A rightward shift in the aggregate supply curve is best explained by an increase in:

increase real output by more than the price level.

A rightward shift of the AD curve in the very flat part of the short-run AS curve will:

increase the price level by more than real output.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

multiplier effect.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

reduce the equilibrium price level, assuming downward flexible prices.

An increase in input productivity will:

right by a multiple of the change in investment.

An increase in net exports will shift the AD curve to the:

150 and $300, respectively.

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demand: $200 300 400 500 600 Price Level: 300 250 200 150 100 Amount of real output supplied: $500 450 400 300 200 Refer to the above data. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to:

a worsening of business expectations.

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demand: $200 300 400 500 600 Price Level: 300 250 200 150 100 Amount of real output supplied: $500 450 400 300 200 Refer to the above data. If the amount of real output demanded at each price level falls by $200, this might have been caused by:

a surplus of real output of $150 will occur.

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demand: $200 300 400 500 600 Price Level: 300 250 200 150 100 Amount of real output supplied: $500 450 400 300 200 Refer to the above data. If the price level is 250 and producers supply $450 of real output:

200

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demand: $200 300 400 500 600 Price Level: 300 250 200 150 100 Amount of real output supplied: $500 450 400 300 200 Refer to the above data. The equilibrium price level will be:

$2.50.

Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: input quantity: 100 150 200 Real Domestic Product: 200 300 400 Refer to the above table. If the price of each input is $5, the per-unit cost of production in the above economy is:

2.

Answer the question on the basis of the following information about the relationship between input quantities and real domestic output in a hypothetical economy: input quantity: 100 150 200 Real Domestic Product: 200 300 400 Refer to the above table. The level of productivity in the above economy is:

30 percent.

Answer the question on the basis of the following information: An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10, each unit of raw materials, $4, and each unit of labor, $3. Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about:

supply curve would shift to the left.

Answer the question on the basis of the following information: An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10, each unit of raw materials, $4, and each unit of labor, $3. Refer to the above information.Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate:

$0.10.

Answer the question on the basis of the following information: An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10, each unit of raw materials, $4, and each unit of labor, $3.Refer to the above information. The per-unit cost of production in this economy is:

above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Efficiency wages are:

aggregate supply curve would shift to the left.

Other things equal, if the U.S. dollar were to depreciate, the:

increase both the price level and real output.

Given a fixed upsloping AS curve, a rightward shift of the AD curve will:

leftward shift of AS curve.

Graphically, cost-push inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

Graphically, demand-pull inflation is shown as a:

rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a:

the price level is inflexible downward and a recession has occurred.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

will increase, but real output may increase, decrease, or remain unchanged.

If aggregate demand increases and aggregate supply decreases, the price level:

leftward by $40 billion at each price level.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

rightward by $50 billion at each price level.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

output would necessarily rise.

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:

aggregate demand to decrease and aggregate supply to increase.

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect:

the foreign purchases effect.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

increase aggregate demand.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

aggregate supply decreases and aggregate demand increases

In which of the following sets of circumstances can we confidently expect inflation?

are the costs to firms of changing prices and communicating them to customers.

Menu costs:

expand investment and shift the AD curve to the right.

Other things equal, a decrease in the real interest rate will:

increase both aggregate demand and aggregate supply.

Other things equal, a reduction in personal and business taxes can be expected to:

shift the aggregate supply curve to the right.

Other things equal, an improvement in productivity will:

flexible upward, but inflexible downward.

Prices and wages tend to be:

real output per unit of input.

Productivity measures:

rise by 60 percent and the aggregate supply curve would shift to the left.

Refer to the above table. Suppose that the price of each input increased from $5 to $8. The per-unit cost of production in the above economy would:

supply curve will shift rightward.

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:

2.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the above information. The level of productivity is:

remain unchanged.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information.Refer to the above information. All else being equal, if the price of each input increased from $4 to $6, productivity would:

supply curve to shift to the left.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information.Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate:

$50 billion.

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The aggregate demand curve is:

shows the amount of real output that will be purchased at each possible price level.

The aggregate demand curve:

per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

The aggregate supply curve (short-run) is upsloping because:

is steeper above the full-employment output than below it.

The aggregate supply curve (short-run):

slopes upward and to the right.

The aggregate supply curve (short-run):

shows the various amounts of real output that businesses will produce at each price level.

The aggregate supply curve:

explain shifts in the aggregate demand curve.

The determinants of aggregate demand:

include resource prices and resource productivity.

The determinants of aggregate supply: