Econ Test 2 (Aplia Quizzes)

Which of the following would increase output in the short run?

An increase in stock prices makes people feel wealthier. Firms chose to purchase more investment goods. Government spending increases.

During recessions declines in investment account for about:

2/3 of the decline in real GDP.

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

Aggregate demand right

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

Aggregate demand to the right.

Which of the following would cause stagflation?

Aggregate supply shifts left.

A decrease in taxes would move the economy from C to

B in the short run and A in the long run.

The shift of the shortrun aggregatesupply curve from SRAS1 to SRAS2

Could be caused by a decrease in the expected price level.

When the price level increases, the real value of people's money holdings:

Falls, so they buy less.

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

False

Which of the following would not be included in aggregate demand?

Government's tax collections.

Which part of real GDP fluctuates most over the course of the business cycle?

Investment Expenditures

The position of the longrun aggregate supply curve

Is determined by resource usage and technology.

Which of the following would help explain why the aggregate demand curve slopes downward?

Lower price level reduces the interest rate, which encourages greater spending on investment goods.

Other things the same, when the price level rises more than expected, some firms will have

Lower than desired prices, which increases their sales.

If the price level rises above what was expected and nominal wages are fixed, then

Production becomes more profitable so firms will hire more workers.

The stickywage theory of the shortrun aggregate supply curve says that when the price level is lower than expected,

Production is less profitable and employment rate.

The aggregate quantity of goods and services demanded changes as the price level rises because

Real wealth falls, interest rate rise, and the dollar appreciates.

Other things the same, when the price level rises, interest rates:

Rise, so firms decrease investment.

In the mid1970s the price of oil rose dramatically. This

Shifted aggregate supply left, the price level rose, and real GDP fell.

The average price level is measured by

The GDP Deflator.

Suppose the economy is in longrun equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the shortrun

The price level will rise, and real GDP might rise, fall, or stay the same.

Aggregate demand includes:

The quantity of goods and services the government, households, firms, and customers abroad want to buy.

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

The real value of wealth. The value of currency in the market for foreign exchange. The interest rate.

The stickyprice theory implies that

The short-run aggregate-supply curve is upward-sloping. Menu costs influence the speed of adjustment of prices. An unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.

If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the shortrun aggregatesupply curve to shift to the left.

True.

An increase in the actual price level does not shift the shortrun aggregate supply curve, but an expected increase in the price level shifts the shortrun aggregate supply curve to the left.

True.

If speculators bid up the value of the dollar in the market for foreigncurrency exchange, U.S. aggregate demand would shift to the left.

True.

The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

True.

The exchange-rate effect is the idea that a higher U.S. price level causes the value of the dollar to increase in foreign exchange markets, and this effect contributes to the downward slope of the aggregate-demand curve.

True.

If the economy starts at Y, then a recession occurs at

W.

If output is above its natural rate, then according to stickywage theory:

Will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

Suppose the economy is in longrun equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

as people revise their pricelevel expectations downward, firms and workers strike bargains for lower nominal wages.