macro chapter 12
Other things equal, a reduction in personal and business taxes can be expected to:
increase both aggregate demand and aggregate supply.
Per-unit production cost is:
total input cost divided by units of output.
The aggregate supply curve (short run):
is steeper above the full-employment output than below it.
determinants of aggregate supply
changes in... -input prices -productivity -legal-institutional environment
Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. The per-unit cost of production in the economy described is:
$2.
determinants of aggregate demand
-change in consumer spending - consumer wealth - consumer expectations - household borrowing - taxes -change in investment spending - interest rates - expected returns - technology - degree of excess capacity - business taxes -change in gov. spending -change in net export spending - national income abroad - exchange rates
changes in equilibrium
-increases in AD: demand-pull inflation -decreases in AD: recession and cyclical unemployment - fear of price wars - menu costs - wage contracts - moral, effort, and productivity - minimum wage -decreases in AS: cost-push inflation -increases in AS: full employment with price-level stability
In the diagram, the economy's long-run aggregate supply curve is shown by line:
1
In the diagram, the economy's short-run AS curve is line ___ and its long-run AS curve is line ___.
2;1
What percentage of the average U.S. firm's costs are accounted for by wages and salaries?
75
Which one of the following would not shift the aggregate demand curve?
A change in the price level.
In which of the following sets of circumstances can we confidently expect inflation?
Aggregate supply decreases and aggregate demand increases.
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
An appreciation of the U.S. dollar.
Which of the following would most likely shift the aggregate demand curve to the right?
An increase in stock prices that increases consumer wealth.
Which of the following would not shift the aggregate supply curve?
An increase in the price level
Refer to the diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be:
F and C, respectively.
In the diagram, a shift from AS1 to AS2 might be caused by:
a decrease in the prices of domestic resources.
The real-balances effect indicates that:
a higher price level will decrease the real value of many financial assets and therefore reduce spending.
productivity
a measure of average output or real output per unit of input. Total output / total input. For example, productivity of labor is determined by dividing real output by hours of work
aggregate supply (AS)
a schedule or curve showing the total quantity of goods and service that would be supplied (produced) at various price levels. this relationship varies depending on the time horizon and how quickly output prices and input prices can change
aggregate demand (AD)
a schedule or curve that shows the total quantity of goods and services that would be demands (purchased) at various price levels
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:
aggregate demand curve would shift to the right.
Other things equal, if the U.S. dollar were to depreciate, the:
aggregate supply curve would shift to the left.
Refer to the diagram. If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that:
aggregate supply has decreased, equilibrium output has decreased, and the price level has increased
efficiency wages
an above-market (above-equilibrium) wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover
immediate-short-run aggregate supply curve
an aggregate supply curve for which real output, but not the price level, changes when the aggregate supply curve that implies an inflexible price level -horizontal line on AS curve -input and output prices are fixed
short-run aggregate supply curve
an aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level -curve looks kinda like a backwards C -input is fixed but output varies
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce:
an expansion of real output and a stable price level.
The interest-rate effect suggests that:
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Other things equal, appreciation of the dollar:
decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
The aggregate demand curve is:
downsloping because of the interest-rate, real-balances, and foreign purchases effects.
Other things equal, a decrease in the real interest rate will:
expand investment and shift the AD curve to the right.
equilibrium real output
in the aggregate demand-aggregate supply (AD-AS) model, the price level at which aggregate demand equals aggregate supply; the price level at which the aggregate demand curve intersects the aggregate supply curve
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:
increase U.S. exports and decrease U.S. imports.
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to
increase aggregate demand.
In the diagram, a shift from AS2 to AS3 might be caused by a(n):
increase in business taxes and costly government regulation.
Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n):
increase in government regulation.
In the diagram, a shift from AS1 to AS3 might be caused by a(n):
increase in the prices of imported resources.
The short-run aggregate supply curve represents circumstances where:
input prices are fixed, but output prices are flexible.
The economy's long-run aggregate supply curve:
is vertical.
A decline in investment will shift the AD curve to the:
left by a multiple of the change in investment.
If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:
leftward by $40 billion at each price level
Graphically, cost-push inflation is shown as a:
leftward shift of the AS curve.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the:
move from point a to point b in panel (B).
The foreign purchases effect:
moves the economy along a fixed aggregate demand curve.
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:
multiplier effect.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by:
panel (A) only.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by:
panel (B) only
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by:
panel (B) only.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment, and price stability are depicted by:
panel (C) only.
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:
panels (A) and (B).
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in:
panels (A) and (C).
In the diagram, a shift from AS3 to AS2 might be caused by an increase in:
productivity.
Productivity measures:
real output per unit of input.
causes of downward slope of AD curve
real-balance effect interest-rate effect foreign-purchases effect
If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:
rightward by $50 billion at each price level.
Graphically, demand-pull inflation is shown as a:
rightward shift of the AD curve along an upsloping AS curve.
Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a:
rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
Other things equal, an improvement in productivity will:
shift the aggregate supply curve to the right.
The aggregate demand curve:
shows the amount of real output that will be purchased at each possible price level.
The aggregate supply curve:
shows the various amounts of real output that businesses will produce at each price level.
The aggregate supply curve (short run):
slopes upward and to the right.
Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. Given an increase in input price from $4 to $6, we would expect the aggregate:
supply curve to shift to the left.
Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:
supply curve will shift rightward.
The equilibrium price level and level of real output occur where:
the aggregate demand and supply curves intersect.
long-run aggregate supply curve
the aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level - vertical line on AS curve -input and output prices vary
equilibrium price level
the gross domestic product at which the total quanitty of final goods and final services purchased (aggregate expenditures) is equal to the total quantity of final goods services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:
the increase in productivity.
foreign purchases effect
the inverse relationship between the net exports of an economy and its price level relative to foreign price levels
aggregate demand-aggregate supply (AD-AS) model
the macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output (real GDP)
menu costs
the reluctance of firms to cut prices during recessions (that they think will be short-lived) because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants
interest-rate effect
the tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)
real-balances effect
the tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in price level.
productivity formula
total input / total input
