Macro Midterm part 3
Autoworkers agree to a lower money wage rate. This event _______.
increases the quantity of real GDP demanded
Give some examples of monetary policy that decrease aggregate demand. Examples of monetary policy that decrease aggregate demand include ______.
A decrease in the quantity of money and an increase in interest rates
Does economic growth result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply? Economic growth results from ______.
A growing supply of labor and increasing labor productivity, which increase long-run aggregate supply
Describe three types of short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP is less than potential GDP is _____ equilibrium. And one in which real GDP equals potential GDP is _____ equilibrium.
A below full-employment; a full-employment Picture
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve? A rise in the money wage rate with no change in potential GDP creates ______.
A leftward shift of the SAS curve and no change in the LAS curve
The following events have occurred at times in the history of the United States: 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Explain the effect of each of the following events on aggregate supply and aggregate demand in the United States. Event 1 Event 2 Event 3
Decrease aggregate demand Decreases short-run aggregate supply Decreases aggregate demand
Draw the long-run aggregate supply curve when potential GDP is $18.5 trillion. Label it. As we move up along the long-run aggregate supply curve, ______.
Picture
If the price level and the money wage rate rise by the same percentage, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move? If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
Does not change; long-run
The U.S. price level rises. This event ______.
Increases the quantity of real GDP supplied
Explain for each event whether it changes the quantity of real GDP supplied, short-run aggregate supply, long-run aggregate supply, or a combination of them. Automotive firms in the United States switch to a new technology that raises productivity. This event ______ short-run aggregate supply and ______ long-run aggregate supply.
Increases; increases
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move? If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
Increases; shot-run
Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion, ______.
Mexico's price level rises and quantity of real GDP demanded decreases, but Mexico's aggregate demand is unchanged
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
Money wage rate
Why does the aggregate demand curve slope downward? The aggregate demand curve slopes downward because _______.
Of the wealth effect and the substitution effect
Draw a short-run aggregate supply curve. Label it. As we move up along the short-run aggregate supply curve, ______.
Picture
How do a decrease in foreign income and a decrease in taxes change aggregate demand? Aggregate demand _______ when a decrease in foreign income occurs. Aggregate demand _______ when a decrease in taxes occurs.
Picture
If potential GDP increases, what happens to aggregate supply? When potential GDP increases, ______.
Picture
In the graph, the initially the aggregate supply curve is SAS0 and the aggregate demand curve is AD0. Some events change aggregate demand from AD0 to AD1. Describe two events that could have created this change in aggregate demand. What is the equilibrium after aggregate demand changed? If potential GDP is $1 trillion, the economy is at what type of macroeconomic equilibrium?
Picture
In Japan, potential GDP is 600 trillion yen and the table shows the aggregate demand and short-run aggregate supply schedules.
Picture
The following events have occurred at times in the history of the United States: 1. The world economy goes into an expansion. 2. U.S. businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium.
Picture
The graph gives a long-run aggregate supply curve and a short-run aggregate supply curve. Draw a new curve that shows the effect of a rise in the money wage rate. Label it. With a rise in the money wage rate, ______.
Picture
The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in the expected future inflation rate. Label it. An increase in expected future income _______. An increase in the expected future inflation rate _______.
Picture
The graph shows an economy's long-run aggregate supply curve. Draw an aggregate demand curve and a short-run aggregate supply curve such that when the economy is in long-run equilibrium, the price level is 110. Label the curves. Draw a point at the long-run macroeconomic equilibrium. In the long-run macroeconomic equilibrium, ______.
Picture
The graph shows a long-run aggregate supply curve and a short-run aggregate supply curve. Draw an arrow along one of the curves that illustrates a rise in the price level when the money wage rate remains unchanged. Label it 1. Draw an arrow along one of the curves that illustrates a rise in the price level accompanied by the same percentage rise in the money wage rate. Label it 2. An increase in the price level when the money wage rate remains unchanged increases ______.
Picture
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium.
Rises; decreases
Choose the correct statement about the LAS curve.
The LAS curve is vertical because potential GDP is independent of the price level.
Complete the sentences. When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______
The LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
The SAS curve; increases
What does the aggregate demand curve show? What factors change and what factors remain the same when there is a movement along the aggregate demand curve? The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______ when everything else remains the same.
The price level
When does potential GDP increase? Potential GDP increases when _______.
The quantity of capital increases
When the price level in Mexico rises, _______.
The quantity of real GDP demanded in Mexico decreases
Choose the correct statement.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
Choose the correct statement.
The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Choose the correct statement.
The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run.
Does inflation result from increases in aggregate demand, short-run aggregate supply, or long-run aggregate supply? Inflation results from ______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
Give some examples of fiscal policy that increase aggregate demand. Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
When Mexico decreases the quantity of money, Mexico's aggregate demand ______.
decreases and its AD curve shifts leftward
The U.S. price level rises. This event _______.
decreases the quantity of real GDP demanded
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. Explain how a rise in wages in China will influence the quantity of real GDP supplied and aggregate supply in China. A rise in wages in China _______ .
decreases China's short-run aggregate supply and the quantity of real GDP supplied does not change
Wages Rising Faster than Prices Paychecks in Kansas are growing, according to the U.S. Department of Labor. Jacqueline Midkiff, with the department's office in Kansas City, says the average overall increase across the board through the Midwest, is 1.9 percent over this time last year, while inflation grew at 1.4 percent for the same time period. Source: Kansas Public Radio, August 1, 2012 Explain how "the average overall increase across the board" wage increase will influence aggregate supply. The "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply because it increases firms' costs
Complete the sentence. A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
The Fed increases the quantity of money and all other things remain the same. Explain the effect of the increase in the quantity of money on aggregate demand in the short run. In the short run, aggregate demand _______.
increases because interest rates fall and it is it easier to get a loan to buy homes and large consumer goods
How do fluctuations in aggregate demand and short-run aggregate supply bring fluctuations in real GDP around potential GDP? Starting from a full-employment equilibrium, an increase in aggregate demand ______, and creates ______ gap.
increases real GDP above potential GDP; an inflationary
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand. Automotive firms in the United States switch to a new technology that raises productivity. This event _______.
increases the quantity of real GDP demanded
The increase in investment ______ aggregate demand. The decrease in government spending _______ aggregate demand.
increases; decreases
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ potential GDP.
increases; decreases real GDP below
Autoworkers agree to a lower money wage rate. This event ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; does not change
Gross Domestic Product for the First Quarter of 2017 The increase in real GDP in the first quarter primarily reflected increases in personal consumption expenditures, exports, and investment. Government spending decreased. Source: Bureau of Economic Analysis, June 29, 2017 Explain how the items in the news clip influence U.S. aggregate demand. The increase in the personal consumption expenditures ______ aggregate demand. The increase in exports ______ aggregate demand.
increases; increases
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
real GDP; Price level
A movement along the aggregate demand curve occurs if _______.
the price level changes and all other factors remain unchanged
