Principles of Economics Marco
Refer to Figure 33-7. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to
Z in the long run
When the economy is in a short-run equilibrium above potential output, then employment is
higher than full employment
A positive aggregate demand shock will ________ prices in the long run
increase
A positive aggregate demand shock will
increase output and employment in the short run
A negative aggregate demand shock in the long run will lower
prices
A negative aggregate demand shock in the short-run will lower
production employment prices *all of the above
Stagflation exists when prices
rise and unemployment rises.
An economic expansion caused by a shift in aggregate demand causes prices to
rise in the short run, and rise even more in the long run.
A positive aggregate demand shock that increases consumption spending by $50 billion will
shift the AD curve to the right by more than $50 billion
In the mid-1970s the price of oil rose dramatically. This
shifted aggregate supply left, the price level rose, and real GDP fell
The Federal Reserve's inflation fighting actions in 1980-82
shifted the aggregate demand curve to the left
The long-run effect of an increase in household consumption is to raise
the price level and leave real output unchanged.
Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, we would expect
the price level to fall and real GDP to rise
Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run
the price level will rise, and real GDP might rise, fall, or stay the same.
As price expectations fell in response to the recession induced by the Federal Reserve,
the short-run aggregate supply curve shifted down/right
When production costs rise,
the short-run aggregate supply curve shifts to the left.
Suppose the economy is in a short-run equilibrium below potential output, then
unemployment is above the natural rate, generating downward pressure on wages and prices. The decline in wages will shift the SRAS curve down/right.
Beginning at least in the 1980s,
wage inequality has increased
As price expectations decline,
wages decline, lowering the cost of production and prices. Lower prices create a movement along the aggregate demand curve leading people to spend more.
The short-run aggregate supply is upward sloping because as the general price level increases
when wages are sticky, firms per unit profit rises when wages are sticky, firms per unit profit declines
The recession of 1980-1982 was caused by
monetary policy shock initiated to lower inflation
To lower inflation during the 1980-82 "double-dip" recession, the Federal Reserve raised the federal funds interest rate which led to
lower spending and higher unemployment
Paul Volcker, the chair of the Federal Reserve during the 1980-82 recession, communicated clearly and effectively the Federal Reserve's commitment to lowering inflation. In an attempt to
manage price expectations
Refer to Figure 33-5. In Figure 33-5,
Point B represents a short-run equilibrium, and Point A represents a long-run equilibrium.
Refer to Stock Market Boom 2015. What happens to the expected price level and what impact does this have on wage bargaining?
The expected price level rises. Bargains are struck for higher wages.
A positive aggregate demand shock will eventually raise firms per unit costs because wages will eventually rise and operating costs may also rise
True
Suppose that the price level rises, generating a change in spending. This describes
a movement along the AD curve
In the terminology of the task & computerization research, a routine task is
a task that can be automated
Refer to Stock Market Boom 2015. Which curve shifts and in which direction?
aggregate demand shifts right
When physical capital becomes more productive and we would expect
aggregate demand to increase
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
aggregate demand to the right
Which of the following would cause stagflation?
aggregate supply shifts left
The reaction of output and prices to an aggregate demand shock is
an endogenous reaction
Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually
because unemployment is high, wages will be bid down and short-run aggregate supply will shift right.
Refer to Financial Crisis. What happens to the price level and real GDP in the short run?
both the price level and real GDP fall
Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?
both the price level and real GDP rise.
Following a positive aggregate demand shock, the price rise will
cause some firms to increase production cause some buyers to purchase less *both of the above
Fluctuations of production away from potential output are
caused by exogenous shocks change employment and production because wages and some prices are sticky will eventually lead to changes in wages and price expectations *all of the above
Suppose the economy begins at potential output. Which of the following shocks would lead to upward pressure on wages and prices.
consumer and business confidence rise
An increase in the price level affects aggregate spending because
consumption, investment and NX all decline
Refer to Figure 33-5. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
could be caused by a decrease in the expected price level.
Following an aggregate demand shock, the economy's self-adjustment mechanism will
create price adjustments that eventually return the economy to potential output
The 1990s was a period of
high growth and declining inflation
If the inflation were to rise to 5% and the Federal Reserve wanted to keep inflation at 2%, it would take action to try to
decrease AD
Which of the following shocks would create both an increase in unemployment and an increase in inflation
energy prices increase
In response to a rise in energy prices, eventually wages will
fall because of the initial increase in unemployment
In which case can we be sure real GDP rises in the short run?
foreign economies expand and government purchases rise.
Computerization and automation have led to employment polarization. Which of the following is not consistent with that employment polarization?
increasing employment in jobs of all wage and skill levels
Lower prices cause (check all that apply)
interest rates to decline exchange rates to depreciate wealth to increase
By 1980, inflation was
just over 11% when measured with the regular PCE and just under 10% when measured with core PCE
The growth and inflation trends of the 1990s are consistent with which of the following
long-run supply increasing faster than aggregate demand
Recessions in Canada and Mexico would cause
the U.S. price level and real GDP to fall
If an aggregate demand shock initially decreases investment spending by $75 billion and the MPC equals .5, then
the aggregate demand curve shifts to the left by $150 billion
A key economic factor driving output growth and inflation trends during the 1990s was
the information technology boom
Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to
rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
An aggregate demand shock is
an exogenous event
Which of the following would raise the price level in both the short and long run?
an increase in government expenditures
Which of the following shifts short-run aggregate supply left?
an increase in price expectations
In the short-run following a positive aggregate demand shock which of the following is true
most wages have not yet adjusted
A positive aggregate demand shock will __________ production in the long run
not change
Suppose that the economy begins at potential output when our largest trading partners apply high tariffs on U.S. goods. In the short-run,
output, production, spending and inflation decrease, unemployment increases
Suppose that the economy begins at potential output when personal income taxes increase. In the short-run,
output, production, spending and inflation decrease, unemployment increases
Suppose that the economy begins at potential output when capital becomes permanently more productive. In the short-run,
output, production, spending and inflation increase, unemployment decreases
Suppose that the economy begins at potential output when stock market valuations increase and stay high. In the short-run,
output, production, spending and inflation increase, unemployment decreases
Suppose the economy begins at potential output. Please select ALL of the shocks that could cause a recession
personal income taxes increase monetary policy increases interest rates government decreases social security payments
A sharp and long-lasting rise in energy prices will, in the short run,
shift the short-run aggregate supply up/left decrease production and employment increase prices *all of the above
Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts
short-run aggregate supply left.
In the short-run following a positive aggregate demand shock, some firms will raise prices because
shortages exist at the original prices
The economy's quick recovery from the 1980-82 recession was in part a result of all of the following EXCEPT
the unemployment rate never went too high during the recession
The short-run is defined as
the period during which prices and wages have not yet fully adjusted to a shock
If aggregate demand shifts left, then in the short run
the price and real GDP both fall
The quicker that wages and price expectations adjust
the quicker will be the economy's adjust back to potential output
When wages and price expectations rise
the short-run aggregate supply curve shifts up/left
Suppose the economy begins in a short-run equilibrium above potential output. Return to long-run equilibrium occurs as
wages increase and the SRAS shifts up/left
If output is above its natural rate, then according to sticky-wage theory
workers will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.
