Economics Chapter 13 Unit 4.2 Practice Test

decreases aggregate supply because a rise in the money wage rate increases​ costs, so firms employ fewer workers

A rise in the money wage rate when the economy is at potential GDP​ _______.

increase; increases

Aggregate demand increases if expected future​ income, inflation, or profits​ _______. And aggregate demand increases if fiscal policy​ _______ government expenditure.

decreases, increases

Aggregate demand increases if fiscal policy​ _______ taxes or​ _______ transfer payments.

increases; decreases

Aggregate demand increases if monetary policy​ _______ the quantity of money and​ _______ interest rates.

decreases; increases

Aggregate demand increases if the exchange rate​ _______ or foreign income ​_______.

real​ GDP; price level

Aggregate demand is the relationship between the quantity of​ _____ demanded and the​ _____ when all other influences on expenditure plans remain the same.

the money wage rate falls

Aggregate supply increases when​ ______.

real​ GDP; price level

Aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when all other influences on production plans remain the same.

The money wage rate​ falls, aggregate supply​ increases, and the price level falls.

An economy has a recessionary gap. With no change in aggregate​ demand, how does the economy return to full​ employment?

consumption​ expenditure, which increases current aggregate demand

An increase in expected future income increases​ ______.

aggregate demand​ increases, an inflationary gap​ appears, and the money wage rate starts to rise

If the economy is at full employment and the Fed increases the quantity of​ money, ______.

decreases, and the aggregate demand curve shifts leftward

If the government of Mexico raises income​ taxes, Mexico's aggregate demand​ _______.

demanded; real GDP supplied

Macroeconomic equilibrium occurs when the quantity of real GDP​ ______ equals the quantity of​ ______.

decreases because it exports to the United States decrease. Mexico's AD curve shifts leftward

Mexico trades with the United States. When the United States experiences negative economic​ growth, Mexico's aggregate demand​ _______.

rising price level and​ demand-pull inflation

Over the past​ decade, the demand for goods produced in China has brought a sustained increase in demand for​ China's exports that has outstripped the growth of supply. As a​ result, China has experienced a​ ______.

decreases; decreases / ​increase; an increase in exports increases aggregate demand and a decrease in imports increases aggregate demand

The decrease in nonresidential investment​ ______ aggregate demand. The decrease in federal government spending​ ______ aggregate demand. / The change in exports and imports​ _______ aggregate demand because​ _______.

the price level falls

The quantity of real GDP demanded increases if​ ______.

The potential GDP line is vertical because potential GDP is independent of the price level.

What does the potential GDP line​ illustrate?

Mexico's exports to Europe decrease​, ​Mexico's aggregate demand decreases​, and​ Mexico's AD curve shifts

When Europe trades with Mexico and goes into a recession​, ​_______.

increases and its AD curve shifts rightward

When Mexico increases the quantity of​ money, Mexico's aggregate demand​ _______.

aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment

When investment​ increases, _______.

aggregate supply increases

When potential GDP​ increases, ______.

decreases. The AD curve shifts leftward.

When the Mexican government relaxes its environmental standards, so that factories are no longer required to upgrade their production​ facilities, investment in Mexico decreases and​ Mexico's aggregate demand​ _______.

remains the same

When the price level and the money wage rate rise by the same​ percentage, unemployment​ _______.

the quantity of real GDP demanded in Mexico decreases

When the price level in Mexico​ rises, _______.

decreases; increases

When the price level rises but the money wage rate remains​ unchanged, unemployment​ _______ and the quantity of real GDP supplied​ _______.

a decrease in the quantity of money and an increase in interest rates

Which of the following are examples of monetary policy that decrease aggregate​ demand?

An increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments.

Which of the following items are examples of fiscal policy that increase aggregate​ demand?