Macro Exam #3

AE= ?

C + I + G + (X-M)

The _____ effect is a reason for the negative slope of the aggregate demand curve.

Interest rate

Improvements in production capacity will:

Shift the PPF outward

capital to labor ratio

amount of fixed or real capital present in relation to labor.

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products.

increase; aggregate demand for

A(n) _____ in oil prices and a(n) _____ in taxes will shift short-run aggregate supply to the left.

increase; increase

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

increased inflation

The capital-to-labor ratio is:

high in rich countries

Economic growth is shown as a:

shift to the right of the long-run aggregate supply curve.

Infrastructure is:

A country's public capital.

What would NOT cause the aggregate demand curve to shift?

A rise in the aggregate price level causes a decline in exports.

According to the textbook, what brought the United States out of the Great Depression?

An increase in spending on World War II.

_____ inflation occurs when a supply shock reduces aggregate supply.

Cost-Push

What would cause a decrease in aggregate demand?

Increase in taxes

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

A(n) _____ in government spending, a _____ domestic currency, and _____ interest rates will shift a country's aggregate demand to the left.

decrease; stronger; higher

Long-run growth is MOST likely to be achieved by promoting:

development of new technologies.

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

downward; the price level

A shift to the _____ of the _____ curve would cause the price level and employment to decrease.

left; aggregate demand

If a country's population increases at a higher rate than the growth in its real GDP:

the standard of living in the country has declined

If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will:

shift to the right

Investment spending:

tends to be volatile

In the Keynesian macroeconomic equilibrium:

-AE=Y -S=I

List the true statements of economic growth:

-Economic growth leads to increased consumption of goods and services. -Economic growth leads to lower poverty rates. -Economic growth leads to longer life expectancies.

Sources of productivity growth:

-Higher skills—an increase in labor skills. -More capital—an increase in the ratio of capital to labor. -Improved management—better use of available resources in the production process. -Technological advance—the development and use of better capital equipment.

Physical capital includes:

Manufactured products that are used to produce other goods and services.

Which of the following did classical economists believe would happen if the economy experienced a downturn?

The economy would self-correct

The real GDP that firms will produce at varying price levels is:

aggregate supply

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

Demand-pull

In the Keynesian model, the price level is _____.

fixed

In the aggregate demand and supply model, the price level is _____.

flexible

As a general rule, the more capital employed with workers, the _____ their productivity and the _____ their earnings.

higher; higher

As income increases, consumption _____.

increases at a slower rate

The reason business investment is sensitive to interest rates is that:

most funds used for investment are borrowed, so firms incur an interest charge.

Which is NOT a source of productivity growth?

moving resources from production to pension benefits

If the U.S. aggregate price level falls:

net exports rise

Economic growth is most accurately measured using:

real GDP per capita.

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded.

reduces; reduces

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

A production function:

shows the output that is produced using different combinations of inputs combined with existing technology.