ECON CH 12
If total output is 100 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.
10
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.
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 public's 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.
Investment spending refers to purchases of which of the following?
Capital goods
An increase in the price level results in which of the following effects?
Decrease in investments; Decrease in the level of consumption
T/F: 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
What has been a characteristic of the most recent recessions in the U.S.?
GDP gap but no deflation
Which of the following result from a reduction in personal income tax rates on consumers?
Increasing consumer purchases at each possible price level; Increased take-home income
_____ spending will fall if firms' outlook on the economy is pessimistic.
Investment; capital
What are the three time horizons that influence how quickly output and input prices can change?
Long run; Immediate short run; Short run
Which of the following enhance the expected returns on investment and thus increase aggregate demand?
New and improved technology
Select all the choices that explain what happens with rising price levels.
People demand less output; Real balances drop; Purchasing power drops.
_____ 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
Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.
True
An increase in productivity is related to ______.
a reduction in per-unit costs
The wealth effect is reflected by ______.
a rightward shift of the aggregate demand curve
The foreign purchases effect occurs when ______.
a rise in the US price level reduces the quantity of US goods demanded as net exports; a decline in the US price level increases the quantity of US goods demanded as net exports
Raising business taxes shift the ______.
aggregate demand curve to the left
If consumers expect inflation in the near future, consumers will want to buy more products now and ______.
aggregate demand will increase
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.
A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation
cost-push
An economy in a recession that experiences disruptions in markets for goods used in the production of consumer goods will experience ______.
cost-push inflation
A recessionary gap occurs with _____-_____ inflation
cost; push
A decrease in aggregate demand with constant aggregate supply results in _____.
cyclical unemployment
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
If the government subsidizes the development of alternative energy it will _______.
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.
decrease, increase
A decline in expected returns will ______ investment and shift the aggregate demand curve to the ______.
decrease, left
According to the foreign purchases effect, an increase in U.S. domestic price levels will _____ net exports.
decrease, reduce, or lower
An increase in real interest rates will ______ investment spending and ______ borrowing costs.
decrease; increase
An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.
demand-pull
The price of foreign currencies in terms of the US dollar is called the ______.
dollar's exchange rate
An increase in productivity ______.
enables more output with limited resources
Technological advancements will ______ expected returns on investment and ______ aggregate demand.
enhance; increase
New and improved technologies will increase investment spending by ______.
enhancing expected return on investment
An increase in consumer wealth prompts consumers to decrease savings and _____ spending.
increase
Which of the following are sources of productivity?Regulations imposed on firms by the government ______.
increase per-unit production costs and shift the aggregate supply curve to the left
A higher business tax will ______ per-unit costs and ______ short-run aggregate supply.
increase; decrease
A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.
increase; left
Investment spending depends on the real _____ rate and the expected return from _____.
interest; investment
A decline in investment spending at each price level will shift the aggregate demand curve to the
left
The aggregate demand curve will shift to the _____ when there is a reduction in government purchases.
left
Wage increases shift the aggregate supply curve to the
left
Input prices and output prices are flexible in the _____ run.
long
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
The determinants of aggregate supply raise or lower per-unit _____ costs at each price level.
production, input, resource, or output
Total output divided by total inputs is the formula for _____
productivity
The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.
real-balances effect
A decrease in aggregate demand with constant aggregate supply can result in _____
recession
Changes in consumer spending, investment, government spending and net export spending will:
shift the aggregate demand curve
What will a decrease in US net exports do?
shift the aggregate demand curve leftward
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
What will a rise in net exports do?
shift the aggregate demand curve to the right
Businesses will invest less if:
they are pessimistic about future business conditions
If real output is 20 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.
2
Which of the following statements best illustrate a decrease in domestic resource prices and associated shift of the AS curve?
A substantial rise in immigration decreases wages shifting the AS curve rightward; The supply of available land expands shifting the AS curve rightward; A decrease in the price of steel and electronic components shifts the AS curve rightward.
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
What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels? Multiple choice question.
Aggregate supply
Which of the following are sources of productivity?
Better trained workforce; Improved forms of business enterprises; Improved production technology; Better educated workforce
Which of the following are determinants of aggregate demand?
Change in investment spending; Change in consumer wealth
Which of the following are determinants of aggregate supply?
Changes in legal-institutional environments; Changes in input prices; Changes in productivity
Select all of the following factors which can cause net exports to change.
Changes in national income abroad; Changes in exchange rates; Changes in price level
Which of the following are the four components or determinants of aggregate demand?
Consumer spending; Net export spending; Investment spending; Government spending
What reduces the level of change in input prices in both the immediate short run and the short run?
Contractual agreements
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.
Which of the following influence expected returns on investment projects?
Degree of excess capacity; Business taxes; Expectations about future business conditions; Technology
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 True false question.
False
True/False: 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
Select all the following choices that are considered to be part of determinants of aggregate supply if they change.
Government regulations; Prices of imported resources; Business taxes and subsidies
Which of the following will increase per-unit costs and reduce short-run aggregate supply?
Higher business taxes
Which of the following explain the reason for the up-sloping aggregate supply curve in the short run?
Input costs are fixed, but output costs are variable; Higher prices mean higher profits when input costs are fixed.
Which of the following is a reason that a company's input prices can be inflexible for a period of several years?
Large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract.
Select all the choices that explain what happens with dropping price levels.
People demand more output; Real balances rise.
_____ 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
What is one result of a decrease in aggregate demand?
Recession
Select all the following that were characteristic of economic conditions in the United States during the 1990s.
Strong growth; Very low inflation; Full employment
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.
Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?
The short-run curve
Why does the substitution effect fail to explain the downward slope of the aggregate demand curve
The substitution effect does not work when prices fall together in groups.
Why does the substitution effect fail to explain the downward slope of the aggregate demand curve?
The substitution effect does not work when prices fall together in groups.
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: 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
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 are effects of rising national incomes abroad on US exports?
US aggregate demand curve shifts to the right; US exports rise; Foreigners are encouraged to buy more US products.
What happened to the U.S. economy in the 1990s?
Unemployment fell to 4%; GDP grew by 4% annually.
Which statements summarize why the income and substitution effects do not explain the downward sloping aggregate demand curve?
When the general price level falls, the substitution effect on domestically produced goods is not applicable; When the general price level is lower, there is not necessarily an increase in nominal income.
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the quantity demanded for real GDP.
a decrease
Deflation occurs when there is ______.
a decreasing aggregate price level
A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve
a shift of
A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.
a shift of
Investment spending refers to ______.
adding to physical capital
A wage decrease shifts the ______.
aggregate supply curve to the right
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level.
an increase
Demand-pull inflation, assuming constant aggregate supply, results in ______ in the price level.
an increase
Demand-pull inflation, assuming constant aggregate supply, results in _______ in the quantity demanded for real GDP.
an increase
A decrease in taxes will lead to ______.
an increase in aggregate demand
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
The determinants of aggregate supply are variables that ______.
cause the aggregate supply curve to shift
The determinants of aggregate supply are variables that ______. Multiple choice question.
cause the aggregate supply curve to shift
"Supply-side" economists argue that increased government regulations on firms will ________.
decrease aggregate supply and increase prices
When interest rates are higher, businesses and consumers will:
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
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 ______.
decreases; left
A decline in the price level is called
deflation
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
In the immediate short run, output prices are typically fixed because firms ______.
enter into supply contracts with their customers
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
In the long-run, output prices and input prices are ______.
flexible
In the short run, output prices are ____ and input prices are _____.
flexible; inflexible
In the short run, output prices are ______ and ______ prices are ______.
flexible; input; sticky
The dollar's exchange rate is the price of _____.
foreign currencies in terms of the US dollar
When the US price level rises relative to foreign price levels, ______.
foreigners buy fewer US goods and Americans buy more foreign goods
The long run aggregate supply curve is vertical at ______.
full employment output
Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at _______.
full strength
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.
increase
Aggregate demand will rise if consumers expect prices to _____ in the future.
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
The 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
The foreign purchases effect occurs when the US price level _____ relative to foreign price levels and the quantity of US goods demanded as net exports decreases.
increases; rises
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 short run _____.
input prices are fixed and output prices can vary
In the immediate short run ______.
input prices as well as output prices are fixed
In the immediate short run, labor contracts that cover several months or years cause ______.
input prices to be sticky or slow to change
One of the reasons that the short run aggregate supply curve is upsloping is because _____ prices are fixed while _____ prices are variable.
input; output
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.
interest-rate
The equilibrium price level and equilibrium output is determined by the ______.
intersection of the aggregate demand curve and the aggregate supply curve
The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______.
inverse
The downward sloping aggregate demand curve indicates that there is a(n) _____ relationship between the price level and real GDP
inverse, negative, or indirect
Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.
investment spending
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
The aggregate demand curve will shift to the _____ when US net exports decline
left
An increase in the money supply will ______ the interest rate, increase investment and ______ aggregate demand.
lower; increase
In the immediate short run, ______ fixed due to the firms commitment to customers to supply whatever quantity is demanded at listed price.
output prices are
The short-run is the period in which ______.
output prices are flexible but input prices are fixed or highly inflexible
All recent recessions in the United States have produced a decrease in ______ but not a decrease in ______.
output; prices
The determinants of aggregate supply affect profits by changing ______ at each price level.
per-unit production costs
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
A change in interest rate may result from a change in the money supply, while the "interest-rate effect" results from a change in ______.
price level
The immediate short run, short run, and long run are the three time horizons that influence the relationship between ______.
price level and real GDP
Improved production technology and a better educated workforce are two main sources of increased
productivity
A reduction in personal income tax will _______.
raise take-home income and increase consumer purchases
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 ______. Multiple choice question.
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
A decrease in aggregate demand with constant aggregate supply can result in ______.
recession
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
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
A decrease in borrowing by consumers for consumption spending will ______.
shift the aggregate demand curve to the left
An increase in government spending is likely to _____.
shift the aggregate demand curve to the right
When consumers increase their consumption spending by borrowing, the aggregate demand curve ______.
shifts 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
A leftward shift in the aggregate _____ curve leads to cost-push inflation.
supply
The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______.
taxes and government regulations
The intersection of the aggregate demand and aggregate supply curves determines ______.
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
Productivity can be illustrated in the formula ______.
total output divided by total inputs
True or false: A change in the price level will change the amount of aggregate demand and the amount of real GDP demanded. True false question.
true
True or false: The interest-rate effect that results from a change in price level is different from a change in the real interest rate that results from a change in the nation's money supply.
true
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
At full-employment output level, the long-run aggregate supply curve is ______.
vertical
In the long run the economy will produce at full-employment output levels no matter what the price is, so the long-run aggregate supply curve is ______.
vertical
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