EXAM 1000 Part 2

Which factor will cause the aggregate demand curve to shift to the right? increase in interest rates reduction in the aggregate price level reduction in personal income taxes decrease in foreign income

reduction in personal income taxes

The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.

False

Q.43. (Figure: Predicting Aggregate Demand Shifts) Which of these would shift the aggregate demand curve from AD1 to AD2? a decrease in government purchases a decrease in interest rates a worsening of consumer expectations about the future an increase in taxes

a decrease in interest rates

The more time a free-market economy has to adjust to price changes, the greater the rate of inflation. more volatility is seen in the business cycle. closer the economy gets to the horizontal portion of the aggregate demand curve. closer GDP gets to the natural rate of output.

closer GDP gets to the natural rate of output.(the level of output con- sistent with equilibrium in the labor market when the actual price level is equal to the expected price level.)

Suppose the unemployment rate is 10% and an economist breaks the unemployment rate into the following components: frictional (3%) and structural (3%). Based on these estimates, the cyclical inflation rate is

4%

Asset sales represent a large fraction of government finance in the United States.

False

One reason the price level did not rise after the implementation of the 2008-2009 stimulus policy actions is that U.S. capacity was fully utilized.

False

The aggregate supply curve shows that the price level and real GDP are indirectly related.

False

Cost-push inflation is a result of too much spending on goods and services.

False Cost-push inflation is a purported type of inflation caused by increases in the cost of important goods or services where no suitable alternative is available. As businesses face higher prices for underlying inputs, they are forced to increase prices of their outputs.

In an AD/AS model, if the economy is below its long-run output, what will happen in the long run if the markets are left alone?

Short-run Aggregate Supply (SRAS) will shift right.

Hypothetically speaking, if the Organization of the Petroleum Exporting Countries (OPEC) stopped exporting oil, a decrease in production would lead to a decrease in aggregate supply.

True

If the price level is stable and if aggregate spending increases, a significant change in output occurs, showing the full impact of the spending multiplier.

True

One reason the price level did not rise after the 2008-2009 stimulus policy actions is that it may not have shifted aggregate demand to the right.

True

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports. They could also reduce taxes.

True

The Great Depression was characterized by a lack of aggregate demand.

True

The collapse of housing prices in 2006-2011 caused aggregate demand to fall when homeowners increased their savings to offset the drop in the value of their homes.

True

In macroeconomics, the long run is

a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information.

Which of these will shift the short-run aggregate supply curve to the right? an increase in the price of oil an increase in the minimum wage an increase in the actual price level an increase in immigration from other countries

an increase in immigration from other countries

The Federal Reserve can purchase _____ to fund fiscal policy, resulting in _____.

bonds; an increase in the money supply

Which event will shift the aggregate demand curve to the right? increase in household debt catastrophic hurricane hits the northeastern United States decrease in taxes decrease in military spending

decrease in taxes

The collapse of home values in 2008 led to a(n) _____ in Americans' consumption and a(n) _____ in their saving rates.

decrease; increase

Q. 58. If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run?

demand-pull inflation

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

increased inflation.

The costs of cyclical unemployment can be minimized by

keeping the economy on a steady, low-inflationary growth path.

The idea that new spending creates more new spending is known as the _____ effect.

multiplier

During periods of economic expansion, cyclical unemployment can become _____, causing the unemployment rate to become _____ than the natural rate of unemployment.

negative; lower

If the U.S. aggregate price level falls

net exports rise.

The short-run aggregate supply curve exhibits a

positive relationship between the aggregate price level and aggregate output.

Which is a determinant of aggregate supply?

productivity

An increase in consumer confidence in a country will result in a

shift of the aggregate demand curve to the right.

Which item does NOT constrain federal spending? the money supply the mortgage interest rate tax receipts the amount of bonds the public is willing to purchase

the mortgage interest rate

When aggregate prices rise, U.S. goods become more expensive relative to goods from other countries, which leads to an increase in exports.

False