Chapter 12

Which of the following are effects of rising national incomes abroad on US exports?

US aggregate demand curve shifts to the right. Foreigners are encouraged to buy more US products. US exports rise.

When firms realize that their excess capacity is shrinking, investment spending ______.

and aggregate demand (AD) will increase

Consumer wealth is defined as the total value of _____

assets minus the total value of liabilities

n the short run, output prices are ____ and input prices are _____.

flexible; inflexible

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

foreigners buy fewer US goods and Americans buy more foreign goods

A rise in consumer wealth will ______ consumer spending.

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

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

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

The immediate short run, short run, and long run are the three time horizons that influence the relationship between ______.

price level and real GDP

Total output divided by total inputs is the formula for

productivity

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

Productivity is the measure of the relationship between a nation's level of ______.

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.

real-balances effect

In the immediate short run for aggregate supply, both input and output prices ____.

remain fixed

An input price is a(n) ______ price while an output price makes up the price level

resource

A tax cut will shift the aggregate demand (AD) curve to the

right

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

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

right

If firms are optimistic about future business conditions, investment will

rise

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

shift the aggregate demand curve

A decline in investment spending at each price level will ______

shift the aggregate demand curve to the left

An increase in investment spending at each price level will ______.

shift the aggregate demand curve to the right

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

spending

The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______.

taxes and government regulations

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

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

What will be the result if the largest foreign providers of steel increase the prices they charge U.S. buyers?

U.S. aggregate supply will decrease.

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 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.

What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?

Aggregate Supply

Which of the following are sources of productivity? Multiple select question.

Better educated workforce Better trained workforce Improved forms of business enterprises Improved production technology

Select all of the following factors which can cause net exports to change

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

Which of the following are determinants of aggregate supply?

Changes in input prices Changes in productivity Changes in legal-institutional environments

Which of the following statements best describes the effect of declining national incomes abroad on US exports and aggregate demand?

Declining national incomes encourage foreigners to purchase fewer U. S goods, net exports fall and US aggregate demand shifts leftward.

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?

Government spending Investment spending Consumer spending Net export spending

What are the three time horizons that influence how quickly output and input prices can change?

Immediate short run Long run Short run

Select all the following choices that are considered to be part of determinants of aggregate supply if they change.

Prices of imported resources Government regulations Business taxes and subsidies

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 the choices that explain what happens with rising price levels.

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

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

Real balances rise. People demand more output.

What will a rise in net exports do?

Shift the aggregate demand curve to the right

Which of the following influence expected returns on investment projects?

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

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.

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 productivity is related to ______.

a reduction in per-unit costs

Investment spending refers to ______.

adding to physical capital

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

If consumers expect inflation in the near future, consumers will want to buy more products now and ______.

aggregate demand will increase

A wage decrease shifts the ______.

aggregate supply curve to the right

A decrease in taxes will lead to ______.

an increase in aggregate demand

Investment spending refers to purchases of which of the following?

capital goods

An increase in the interest rate and subsequent decreases in investment and aggregate demand could be the result of a_______ in the money supply.

decrease

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

decrease

When interest rates are higher, businesses and consumers will:

decrease investment spending and interest-sensitive consumption spending.

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

decrease; increase

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

decreases

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.

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 ______.

demand curve to the left

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

downward sloping

Technological advancements will ______ expected returns on investment and ______ aggregate demand.

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

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

Higher expected returns on investment will ______.

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

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

increase, decreases

wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.

increase; left

he 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

A decrease in the price of an imported resource ______ US aggregate supply, while an increase in the price of an imported resource ______ US aggregate supply.

increases, decreases

If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.

increases; right

f consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.

increases; right

Wages and salaries for workers in a union are usually ______ because wages are set by a collectively bargained agreement that typically prohibits wage cuts until its expiration.

inflexible downward

What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply?

input prices

In the immediate short run ______.

input prices and output prices are fixed

In the short run _____.

input prices are fixed and output prices can vary

In the immediate short run, labor contracts that cover several months or years cause

input prices to be sticky or slow to change

Investment spending depends on the real______ rate and the expected return from______

interest; investment

Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.

investment spending

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

left

An increase in business taxes will shift the aggregate demand curve to the

left

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

An increase in real interest rates will ______ investment spending and ______ aggregate demand.

lower; reduce

If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates.

national income abroad; exchange

Businesses will invest less if:

they are pessimistic about future business conditions

Productivity can be illustrated in the formula ______.

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 ______.

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

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