macro chap 12

Changes in consumer spending, investment, government spending and net export spending will:

shift the aggregate demand curve

What will a rise in net exports do?

Shift the aggregate demand curve to the right

What will a decrease in US net exports do?

Shift the aggregate demand curve leftward

Select all that apply Select all the following that were characteristic of economic conditions in the United States during the 1990s.

-Strong growth -Full employment -Very low inflation

If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the

Blank 1: left

The aggregate demand curve will shift to the---- when there is a reduction in government purchases.

Blank 1: left

Wage increases shift the aggregate supply curve to the----

Blank 1: left

A leftward shift in the aggregate---- curve leads to cost-push inflation.

Blank 1: supply

The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer----

Blank 1: wealth

True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded

False Reason: The curve shows an inverse relationship between price level and real output demand.

Which of the following enhance the expected returns on investment and thus increase aggregate demand?

New and improved technology

Consumer wealth is defined as the total value of ______.

assets minus the total value of liabilities

A decrease in aggregate demand with constant aggregate supply can result in ______.

recession

An input price is a(n) ______ price while an output price makes up the price level.

resource Reason: Inputs and their associated costs can be both fixed and variable.

What is one result of a decrease in aggregate demand?

Recession

True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.

True Reason: Taxes, subsidies and regulations are part of the legal - institutional environment that is a determinant of AS.

What will be the result if the largest foreign providers of steel increase the prices they charge U.S. buyers?

U.S. aggregate supply will decrease.

A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the quantity demanded for real GDP.

a decrease

An increase in productivity is related to ______.

a reduction in per-unit costs

A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.

a shift of

The determinants of aggregate supply are variables that ______.

cause the aggregate supply curve to shift

A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation

cost-push

Higher expected returns on investment will ______.

increase the demand for capital and shift the aggregate demand curve to the right

A higher business tax will ______ per-unit costs and ______ short-run aggregate supply.

increase; decrease

What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply?

input prices means; how much to make the product

The equilibrium price level and equilibrium output is determined by the ______.

intersection of the aggregate demand curve and the aggregate supply curve

Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.

investment spending

The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______.

taxes and government regulations

The intersection of the aggregate demand and aggregate supply curves determines ______.

the equilibrium price level and equilibrium real GDP

Assuming constant price levels, an initial drop in aggregate demand (AD) results in ______ being at full strength.

the multiplier Reason: The multiplier, or total effect of an initial change in AD, is at full strength when changes in AD occur along what, in effect, is a horizontal segment of the aggregate supply curve.

Select all that apply Select all of the following factors which can cause net exports to change.

-Changes in national income abroad -Changes in exchange rates -Changes in price level

Select all that apply An increase in the price level results in which of the following effects?

-Decrease in the level of consumption -Decrease in investments means; increasing product prices

Select all that apply What happened to the U.S. economy in the 1990s?

-GDP grew by 4% annually. -Unemployment fell to 4%.

The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______.

-increases money demand which increases interest rates and decreases the amount of real GDP means; worth of money increase/interest rate goes up. everything product become expensive resulted in less demand for product

When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.

-interest-rate means; interest rate goes up

How is the real-balances effect defined?

A higher price level reduces the purchasing power of the public's accumulated savings balances.

Cyclical unemployment and recession often arise from---- in aggregate demand. (Enter one word in the blank.)

Blank 1: decreases, declines, drops, falls, reductions, dips, or decrease

Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being---- than potential GDP.

Blank 1: greater, higher, larger, more, or bigger

Improved production technology and a better educated workforce are two main sources of increased----

Blank 1: productivity

Select all that apply Which of the following are sources of productivity?

-Better trained workforce -Improved production technology -Improved forms of business enterprises -Better educated workforce

When interest rates are higher, businesses and consumers will:

-decrease investment spending and interest-sensitive consumption spending.

A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level.

an increase

What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?

Aggregate supply

Deflation occurs when there is ______.

a decreasing aggregate price level

If the government subsidizes the development of alternative energy it will _______.

decrease the per-unit production costs and shift the aggregate supply curve to the right

A business subsidy will _____ production costs and ______ short run aggregate supply.

decrease, increase

A decline in expected returns will ______ investment and shift the aggregate demand curve to the ______.

decrease, left

An increase in real interest rates will ______ investment spending and ______ borrowing costs.

decrease; increase

If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.

decreases; left

A decline in the price level is called----

deflation

An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.

demand-pull

An increase in productivity ______.

enables more output with limited resources

New and improved technologies will increase investment spending by ______.

enhancing expected return on investment

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.

fall; rise

When the US price level rises relative to foreign price levels, ______.

foreigners buy fewer US goods and Americans buy more foreign goods

Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at _______.

full strength

A rise in consumer wealth will ______ consumer spending.

increase

A decrease in the money supply is likely to cause a(n) ______ in interest rates, and subsequent ______ in investments and aggregate demand.

increase, decreases

A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.

increase; left

If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.

increases; right

If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates.

national income abroad; exchange

The short-run is the period in which ______.

output prices are flexible but input prices are fixed or highly inflexible

The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.

real-balances effect means: balancing product prices, so deflation of money avoided

A decline in investment spending at each price level will ______.

shift the aggregate demand curve to the left

An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.

wealth

Select all that apply Which of the following influence expected returns on investment projects?

-Business taxes -Technology -Expectations about future business conditions -Degree of excess capacity

Select all that apply Which of the following are determinants of aggregate supply?

-Changes in input prices -Changes in productivity -Changes in legal-institutional environments

Select all that apply Which of the following are the four components or determinants of aggregate demand?

-Investment spending -Net export spending -Government spending -Consumer spending

Select all that apply Select all the choices that explain what happens with dropping price levels.

-People demand more output. -Real balances rise. means: real balances of money price level means worth of money

Select all that apply Select all the following choices that are considered to be part of determinants of aggregate supply if they change.

-Prices of imported resources -Government regulations -Business taxes and subsidies

Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?

-The level of consumption increases, investment increases, and net exports increase. means; buying power of money increases when the price level decline

A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called

-aggregate demand. Reason: demand usually refers to what an individual desires to buy at a possible price level.

Investment spending depends on the real---- rate and the expected return from---- . (Enter only one word per blank.)

Blank 1: interest Blank 2: investment

The aggregate demand curve will shift to the---- when US net exports decline

Blank 1: left or leftward

Input prices and output prices are flexible in the---- run.

Blank 1: long

Aggregate supply is represented as a schedule or curve showing the relationship between a nation's---- level (index) and the amount of real domestic output that firms in the economy produce.

Blank 1: price

Total output divided by total inputs is the formula for----

Blank 1: productivity

An increase in exports relative to imports will shift the aggregate demand (AD) curve to the----

Blank 1: right

If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the----

Blank 1: right

The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the

Blank 1: right or rite

If firms are optimistic about future business conditions, investment will---- (rise or fall).

Blank 1: rise or increase

The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to----

Blank 1: rise, increase, grow, or expand

Investment spending and aggregate demand will when excess capacity dwindles.

Blank 1: rise, increase, or raise

An unexpected increase in asset values that results in an increase in consumer spending is called the---- effect.

Blank 1: wealth

Investment spending refers to purchases of which of the following?

Capital goods

How can the effect of an unexpected decline in asset values on aggregate demand best be described?

-A decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left.

----is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.

Blank 1: Productivity

A wage decrease will----per-unit production costs and shift the aggregate supply (AS) curve to the---- .

Blank 1: decrease, reduce, lower, drop, lessen, fall, or decline Blank 2: right

A higher price level---- the real value or purchasing power of the public's accumulated savings balances.

Blank 1: decreases, reduces, lowers, drops, or erodes

An increase in consumer wealth prompts consumers to decrease savings and---- spending.

Blank 1: increase or raise

Aggregate demand will rise if consumers expect prices to---- in the future.

Blank 1: increase, rise, or escalate

New and improved technology, seen as investment spending by firms will lead to a(n)---- in aggregate demand

Blank 1: increase, rise, or raise

A decline in investment spending at each price level will shift the aggregate demand curve to the----

Blank 1: left

True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices.

True Reason: The long-run supply curve cannot and does not explain changes to the price level and real output simultaneously.

If consumers expect inflation in the near future, consumers will want to buy more products now and ______.

aggregate demand will increase

A wage decrease shifts the ______.

aggregate supply curve to the right

When firms realize that their excess capacity is shrinking, investment spending ______.

and aggregate demand (AD) will increase Reason: If excess capacity (unused capital) is shrinking, the expected returns on investment in factories and capital equipment rise. Therefore, firms increase their investment spending and AD increases. Recall that changes in spending and AD move in the same direction.

Aggregate---- is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.

demand

A decrease in investment spending at each price level will shift the aggregate ______.

demand curve to the left

The interest rate effect causes the aggregate demand to be ______.

downward sloping

Technological advancements will ______ expected returns on investment and ______ aggregate demand.

enhance; increase

In the short run _____.

input prices are fixed and output prices can vary Reason: Consider how wages (an input cost) remain stagnant as the price level for goods and services rises.

An increase in real interest rates will ______ investment spending and ______ aggregate demand.

lower; reduce

If firms are optimistic about the business outlook, investment will ______ and the investment demand curve shifts _____.

increase; rightward

A decrease in the price of an imported resource ______ US aggregate supply, while an increase in the price of an imported resource ______ US aggregate supply.

increases, decreases

Wages and salaries for workers in a union are usually ______ because wages are set by a collectively bargained agreement that typically prohibits wage cuts until its expiration.

inflexible downward reason; becuase they want higher wages that cause of cutting workers

In the immediate short run ______.

input prices and output prices are fixed

Productivity can be illustrated in the formula ______.

total output divided by total inputs

Productivity is the measure of the relationship between a nation's level of ______.

real output and the amount of resources used to produce that output

In the immediate short run for aggregate supply, both input and output prices ____.

remain fixed

A decrease in borrowing by consumers for consumption spending will ______..

shift the aggregate demand curve to the left

An increase in government spending is likely to _____.

shift the aggregate demand curve to the right

Which of the following will increase per-unit costs and reduce short-run aggregate supply?

Higher business taxes

Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?

The short-run curve

Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.

True Reason: Interest rates are the cost of borrowing money. Thus, as interest rates rise, both consumers and businesses alike are deterred or turned off from borrowing money in order to increase spending.

When does the long run begin?

When the short-run ends

Which of the following explain the reasons for the downward slope of the aggregate demand curve?

A higher price level decreases the purchasing power of the publics' accumulated savings balances.

A decrease in aggregate demand with constant aggregate supply results in _____.

cyclical unemployment

The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply

False Reason: A higher price level reduces the purchasing power of money; therefore you demand more money (borrowing) in order to purchase the same bundle of goods as before. The increase in demand for money reduces the available pool of money, thus causing the price of money (interest rate) to rise.

Which of the following is a reason that a company's input prices can be inflexible for a period of several years?

Large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract.

What is the result of an increase in the money supply?

Lower interest rate, increased investment and increased aggregate demand

An increase in investment spending at each price level will ______.

shift the aggregate demand curve to the right

In the short run, output prices are ____ and input prices are _____.

flexible; inflexible

In the short run, output prices are ______ and ______ prices are ______.

flexible; input; sticky