MACROECON chapter 20
exchange rate effect
NX falls
what shifts the demand curve left?
a decrease in I, C, NX, G
Which of the following shifts short-run aggregate supply right?
a decrease in the price of oil
Which of the following shifts short-run aggregate supply right?
a decrease in wages
stagflation
a period of falling output and rising prices
The classical dichotomy and monetary neutrality are represented graphically by
a vertical long-run aggregate-supply curve
natural rate of output (Yn)
the amount of output the economy produces when unemployment is at its natural rate
In 2001, the United States was in recession. Which of the following things would you not expect to have happened?
increased investment spending
In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households
increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve
economic fluctuations are what?
irregular and unpredictable
in the short run what does the GDP do?
it fluctuates around its trend
Sticky nominal wages can result in
lower profits for firms when the price level is lower than expected
what is the vertical axis for the AS/AD framework?
GDP deflator (P)
interest rate effect
I, C fall
Aggregate demand shifts left when the government
cuts military expenditures
wealth effect
C falls
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. What happens to the expected price level and what's the result for wage bargaining?
The expected price level falls. Bargains are struck for lower wages
business cycles
short-run economic fluctuations
Real GDP grows about how fast in the long run per year on average?
about 3%
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Which curve shifts and in which direction?
aggregate demand shifts left
what shifts the demand curve right?
an increase in I, C, NX, G
Which of the following shifts the long-run aggregate supply curve to the right?
an increase in capital stock
Which of the following would cause investment spending to increase and aggregate demand to shift right?
both an increase in the money supply and an investment tax credit
Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level
decreases the interest rate
recessions
periods of falling real incomes and rising unemployment
Yn is also called
potential output or full-employment output
wages are close to
price
Y is
real GDP
An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level
rises, shifting aggregate supply left
depressions
severe recessions (very rare)
Which of the following is not a determinant of the long-run level of real GDP?
the price level
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. How is the new long-run equilibrium different from the original one?
the price level is lower and real GDP is the same
what happens if the government doesn't try to move the short-run aggregate demand curve?
the short-run aggregate supply curve will naturally move on its own
why does the SRAS slope upward?
the sticky-wage theory (prices slow to adjust)
classical dichotomy
the theoretical separation of nominal and real variables
An increase in P reduces the quantity of goods and services demanded because
the wealth effect , interest-rate effect, exchange-rate effect
If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy
to the left
in the short run an increase in the money supply moves the economy
to the right
Q (Y)
total production
as output falls
unemployment rises
investment is very
volatile
fiscal and monetary policy
when the gov tries to shift the SRAD (demand curve)
If output is above its natural rate, then according to sticky-wage theory
workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left
