ECON CHAPTER 10
Which of the following statements illustrate fiscal policy?
US government has proposed a hike in the corporate tax rate.
A higher exchange rate will result in:
a decrease in net exports and a decrease in aggregate demand
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied (does, does not) change, and there is a movement up along the (long, short) run aggregate supply curve.
does not, long
According to the graph, an increase in the quantity of money is best described by:
the shift in the AD curve
According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:
increasing govt spending
Potential GDP can increase for any of three reasons:
1. An increase in the full-employment quantity of labor 2. An increase in the quantity of capital 3. An advance in technology
Which of these factors will cause the aggregate demand curve to shift?
A change in the expectations of households and firms
When potential GDP increases, ______.
Long and Short run Agg supply increase and their curves shift rightward
when the output gap is recessionary,
Potential GDP > Real GDP
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along LONG OR SHORT run curves
Short
Which of these factors will cause the long-run aggregate supply curve to shift to the right?
The accumulation of more machinery and equipment
If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?
The eventual agreement by workers to accept lower wages
The aggregate demand curve shows the relationship between:
The price level and the quantity of real GDP demanded
A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
Keynesian macroeconomists recommend policies that
actively offset changes in aggregate demand that bring recession
Keynesian theory
advocates active government intervention via fiscal policy when the economy is in recession.
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
How can government policies shift the aggregate demand curve to the right?
by increasing govt purchases
Monetary policy includes
changing the quantity of money and the interest rate.
Aggregate demand (decreases, increases) when an increase when an increase in the exchange rate occurs.
decreases
According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:
increased AD
Aggregate Demand (decreases, increases) when an increase in expected profits occurs.
increases
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied (increases, decreases)
increases
Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap.
increases real GDP above potential GDP; an inflationary
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases; decreases real GDP below
Monetarist macroeconomists recommend policies that
keep taxes low to avoid disincentive effects that decrease potential GDP
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along LONG OR SHORT run curves
long
Which of these shifts the aggregate demand curve to the right?
lower interest rates
In times of recession, the Fed _______ the interest rate and __________ the quantity of money.
lowers; increases
Which of these policies affects the economy through intended changes in the quantity of money and interest rates?
monetary policy
The classical view assumes:
money wage rates adjust quickly.
The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:
on the long-run aggregate supply curve
An international substitution effect arises because when the U.S. price level rises, _______.
people spend less on the more expensive U.S.-made items and they spend more on the less expensive foreign-made items
Classical macroeconomists recommend ______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
The defining feature of the Keynesian view of macroeconomics is that the economy is ______.
rarely at full employment
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium.
rises, decreases
The defining feature of the classical view of macroeconomics is that the economy is ______.
self-regulating and always at full employment
The defining feature of the monetarist view of macroeconomics is that the economy is______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
The long-run aggregate supply curve:
shifts to the right as technological change occurs
If the price level rises and the money wage rate remains constant, there is a movement up along the (long, short) run aggregate supply curve.
short
The aggregate demand and aggregate supply model explains:
short-run fluctuations in real GDP and the price level
The aggregate demand curve slopes downward because of what to effects
wealth and substitution
wealth effect
when the price level falls, the real value of household wealth rises, and so will consumption
