CHAPTER 33 TEST AP MACRO
When saving declines, the quality of investment will ____, and therefore aggregate demand will _______.
Decrease, decrease
When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.
Decrease, increase
An increase in the price level will _____ the real value of wealth and, as a result, there will be _____ the aggregate demand curve
Reduce; an upward movement along
The wealth effect, interest rate effect, and international trade effect all explain why the
aggregate demand (AD) curve has a negative slope.
The economy is in long-run equilibrium when
aggregate demand intersects both long-run and short-run aggregate supply.
The economy is in short-run equilibrium when
aggregate demand intersects short-run aggregate supply.
The wealth effect is best described as resulting from a(n)
increase in the price level, reducing the real value of wealth.
New computer technologies can be expected to
increase long-run aggregate supply.
Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will __________ and output will __________.
increase; increase
You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________.
increase; increase
The aggregate demand curve illustrates the
inverse relationship between the price level and the quantity demanded of real gross domestic product (GDP).
A decrease in aggregate demand is harmful in the short run because ______ but not in the long run because ______.
unemployment rises; the price level falls
The aggregate demand curve is best represented by which of the following equations?
AD= C + I + G + NX
A rise in the price level that leads to a change in the interest rate and therefore to a change in the quantity of aggregate demand, will causeq
An upward movement along the aggregate deman curve
Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point ________ and in the long run to point ________.
B, E
The term "____" cycle is a popular way to describe the recession-expansion pattern followed by the economy.
Business
Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point _______ and in the long run to point _________.
F; E
Which of the following causes an increase in short run aggregate supply?
Firms and workers expect the price level to fall.
When a change in the price level that leads to a change in the quantity of net exports demanded, it is called the ______ effect.
International trade
Which of the following would shift aggregate demand to the right?
Stock market values increase by 20%.
Which of the following would shift aggregate demand to the left?
The value of the dollar increases.
Which of the following is true about recessions in the United States?
They are rarer today than in the past.
The value of one's accumulated assets is best defined as
Wealth
The aggregate demand curve slopes downward because
a higher price level reduces wealth.
A supply shock is defined as
a surprise event that changes a firm's production costs
Suppose that an increase in the price level reduces the value of real wealth, which then causes a reduction in consumption but no change in saving. In this case, there is
a wealth effect but no interest rate effect.
A technological advance leads to a shift in
both short-run and long-run aggregate supply.
Aggregate demand is determined by adding up the spending of
consumers, firms, the government, and foreigners that buy goods and services produced in the United States.
When the price level rises, _____ declines from the wealth effect, ____ declines from the interest rate effect, and _______ decline(s) from the international trade effect.
consumption, investment, and net exports
Input prices affect the firm's _________, and output prices affect the firm's _________.
costs, revenue
The price index used to illustrate the aggregate demand curve is the:
gross domestic product (GDP) deflator.
Adjustments in _________ naturally move the economy toward long-run equilibrium.
price level
Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will ______ and the price level will ________.
remain unchanged; decrease
A severe drought hits a country and reduces farm output by 50 percent. This will impact
short-run aggregate supply
A supply shock causes a shift in
short-run aggregate supply
Aggregate demand is about ______ and aggregate supply is about ______.
spending; production
The slope of the short-run aggregate supply curve can be explained by
sticky input prices and flexible output prices.
Shifts in short-run aggregate supply curve are caused by
supply shocks
The relationship between sticky input prices and flexible output prices explains the
the positive slope of the short-run aggregate supply curve.q
