ILA #3 part 2 (1 of 2)

negative shocks or changes to aggregate demand include

an increase in taxes; a decrease in consumer confidence

economic growth can be shown as

an outward shift of the production possibilities frontier

There is an ___ correction mechanism in our economy, which operates through the aggregate supply

automatic

in the short run, the economy moves to a new equilibrium where real GDP is

below the full-employment level and unemployment is high than the natural rate

the two main determinates of net exports are

exchange rates; national income levels-- productivity, resource prices, social institutions

exports from the US will tend to ___ when foreign income decrease

fall

suppose there is a positive supply shock. in the long run, wages and production costs:

fall, the short-run aggregate supply curve to shift to the right: the price level falls; real GDP rises, and eventually, the economy returns to its full-employment level of real GDP

suppose there is a negative shock. in the long run, wages and production costs:

fall, the short-run aggregate supply curve to shift to the right; the price level fails; real GDP rises, and eventually, the economy returns to its full-employment level of real GDP

if the purchasing power of the US dollar __ relative to other currencies, it is known as a depreciation of the US dollar

falls

which of the following levels of output correspond to the long-run aggregate supply curve

full-employment real GDP; long-run level of output; natural rate of real GDP;;;;; potential output;;; full employment output;; full employment output;; long run real GDP

___ resources costs will shift the aggregate supply curve to the left

higher

the aggregate supply shock of the 70s, caused by oil embargoes and domestic economic policies, drove both inflation and unemployment__

higher

cause investment to fall

higher interest rates; to lower expected returns

cause consumption to fall

higher taxes; falling wealth; deteriorating expectations

When aggregate demand increase, there is ___ inflation and ___ unemployment

higher; lower

lower US income to decrease US ____ and increase net ___

imports; exports

cause investment to rise

improved infrastructure; higher expected returns

in the short run, a shift of the aggregate supply curve to the right indicates ___ production at every price level

increased

cause consumption rise

increased borrowing; lower personal taxes; rising wealth

which of the following will cause government purchase to rise?

increased spending on airports; increased spending highways

Both recession and expansions can cause ___, or a general increase in the level of prices

inflation

demand pull ___ occurs as consumers compete with each other for goods and services, shifting aggregate demand to the right

inflation

When aggregate demand decreases, there is lower ___ and higher ___

inflation; unemployment

in the long run as ___ prices adjust for all firms, ___ falls and the economy returns to the full-employment level of real GDP

input, output

if the short-run aggregate supply curve and the aggregate demand curve intersect at the full employment level of output the economy

is in its short and long run equilibrium

input prices tend to be sticky because

labor contracts might commit firms to paying a certain wage over multiple years

When income decrease in foreign countries, foreigners may be ___ willing and able to purchase goods and services produced in the United States

less

in the long run, the equilibrium price level is determined by the intersection of the

long-run aggregate supply curve and the aggregate demand curve

if the economy is producing above equilibrium, unemployment is very

low, wages will start to rise, which puts upward pressure on prices

the supply curve for an individual good or service is upward-slopping because

marginal costs are increasing

if consumption or gross investment is increasing because of the lower price level that's a

movement along the aggregate demand

if consumption or gross investment is increasing because of the lower price level, that's a:

movement along the aggregate demand

if firms are producing more output because of the higher price level that's a

movement along the aggregate supply

if firms are producing more output because of the higher price level, that's a

movement along the aggregate supply

net exports are

national income levels; exchange rates

suppose there is a negative demand shock; In the short run, the economy moves to a new equilibrium where real GDP is below the full employment level, and unemployment is high than the ____ rate. In the long run, wages and production costs ___. Firms produce more at every price level. The short-run aggregate supply curve shifts to the right moving the economy to a new high equilibrium. The price level __- and real GDP ___ . Eventually, the economy returns to its full-employment level of real GDP

natural; fall; falls;rises

the short-run equilibrium level of real GDP is

not necessarily the full-employment level of output that is consistent with the long run

as wages rise, firms cut back production in the long run and ___ falls

output

improved productivity means that we can produce more ___ with fewer ___

output, input

when there is a ___ supply shock, real GDP rises above the full-employment level, and unemployment is lower than the natural rate

positive

aggregate demand relates the ___ level real GDP

price

in the short run, an increase in the ___ level will increase the quantity of real GDP supplied

price

in the aggregate demand and supply model the

price level is on the vertical axis of the graph and real GDP is on the horizontal axis

a leftward shift of aggregate supply causes ___ to rise with ___

prices; unemployment

___ is defined as the total amount of output produced with a given level of inputs

productivity

social institutions include

property rights courts police protection government

aggregate demand relates the price level to ___ GDP

real

Holding the price level constant, a decrease in net exports ___ the aggregate demand for real GDP

reduces

holding the price level constant, a decrease in net exports ___ the aggregate demand for real GDP

reduces

if ___ costs rise, each additional unit of output will cost more to produce

resource

According to the interest rate effect, when the price level ___ people need more money to make the same number of purchases so the demand for money ___ . As a result, interest rates increase which lowers consumption and investment causing the quality of real ___ demand to ___

rises, rises, GDP, decrease

Changing one of the determinates of aggregate supply will cause the aggregate supply curve to___

shift

if net exports are increasing because of some non-price change, there will be a

shift of the AD curve

if there is a dramatic reduction in electricity prices, there will be a

shift of the AS curve

if the amount of output firms want to produce increases, but the price does not change, that's a

shift of the aggregate supply

An increase in investment will

shift the AE line upward and shift the AD curve to the right

changes in consumption and gross investment can

shift the aggregate demand curve

In the ___ run, the aggregate supply curve slopes upward

short

aggregate supply

social institutions; productivity

formal rules, like minimum wage laws, insurance requirements, and worker safety requirements are examples of ___ institutions that influence the aggregate

social; supply

The term ___ was coined in the 1970s during a period of high unemployment in the united states

stagflation

___ is used to describe an economy that is not growing but has rising inflation together with high unemployment

stagflation

aggregate ___ illustrates how the total amount of goods and services produced in an economy relates to the price level

supply

generally, changes to social institutions that facilitate production shift aggregate ___ to the right

supply

as nominal wages and the costs of other resources rise during an expansion

the aggregate supply curve shifts to the left, real output falls and the price level rises further

once a expansion occurs, as nominal wages and the costs of other resources rise, eventually

the aggregate supply curve to the left, the price level rises, and real GDP returns to the full employment level

if we increase our resources or productivity

the long run aggregate supply curve shifts to the right; the production possibilities frontier will shift out

when we draw an aggregate demand curve we're assuming that the only thing that is changing as we move up and down the curve is:

the overall price level

negative shock or changes to aggregate supply include

an abrupt increase in oil prices; a natural disaster

negative shocks or changes to aggregate supply include

an abrupt increase in oil prices; a natural disaster

aggregate demand is

downward slope

_____demand describes the overall, or total demand for all final goods and services produced in an economy

aggregate

the equilibrium price level and real GDP are determined by the intersection of the

aggregate demand and short-run aggregate supply curves

which of the following statements is true?

In a traditional demand model, we compare the quantity demand of a good to its price; in an aggregate demand model, we use a price index like the consumer price index to represent the overall price level, or average price of goods and services in the economy

the equilibrium level of real GDP is found at the intersection of the

aggregate expenditures schedule and the equilibrium line

just like traditional demand and supply, the ___ demand and supply model in a(n)___

aggregate; equilibrium

The long-run aggregate supply curve is a vertical line originating at the full-employment level of real GDP because

all input prices are flexible in the long run

positive shocks or changes to aggregate supply include:

an abrupt decrease in oil prices; an unexpected increase in productivity

Which of the following statements are true?

We use demand to talk about the price and quantity of a single good or service produced in a specific market; we use aggregate demand to describe the overall, or total, demand for all final goods and services produced in an economy

in deriving demand curve from the aggregate expenditures model

a decrease in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher than it was before the price changes

equilibrium in the aggregate demand and supply model consists of

a price level and a quantity of real GDP

suppose there is a positive supply shock. In the short run, the economy moves to a new equilibrium where real GDP is

above the full-employment and unemployment is lower than the natural rate

___ demand can be interpreted as the overall demand for real GDP from four different sources

aggregate

___ demand relates the price level to real GDP

aggregate

aggregate demand can be interpreted as the overall demand for real GDP, Y, from four different sources

consumption; gross investment; net exports; government purchases

inflation that results from a decrease in aggregate supply is called ___ ___ inflation

cost push

If___ push inflation is occurring, it is because the aggregate ___ curve is shifting to the ___, resulting in lower output and higher prices

cost; supply; left

A(n) ___ in aggregate demand may lead to a recession

decrease

a decrease in consumer confidence cause aggregate demand to ___

decrease

If consumers ___ the amount of goods and services they purchase, given constant prices, then aggregate ___ for real GDP increases

decrease, demand

Holding the price level constant, a(n) ___ in net exports reduces the aggregate ___ for real GDP

decrease; demand

if consumers ___ the amount of goods and services they purchase, given constant prices, then aggregate ___ shifts to the left, since ___ goods are being purchased at every price level

decrease; demand; fewer

Which of the following will cause government purchase to fall

decreased spending on airports; decreased spending on highways

if resource costs rise, output ___ at every price level

decreases

if the government ___ the amount of spending, aggregate demand shifts to the left

decreases

When foreign income rises, aggregate ___ shifts to the right

demand

when the dollar ___ foreign goods and services become more expensive US consumers, and ___fall

depreciates; imports