Unit 3 Macro

A high marginal propensity to consume implies which of the following?

A low marginal propensity to save

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?

Aggregate Demand: Decrease, Aggregate Supply: Not Change

An increase in the purchases of newly constructed houses will result in which of the following?

Aggregate demand will increase as a result of an increase in investment spending.

Which of the following will result in a rightward shift of the aggregate demand curve?

An increase in exports

expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

contractionary fiscal policy

Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation.

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

social insurance

Programs in which eligibility is based on prior contributions to government, usually in the form of payroll taxes.

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).

aggregate supply curve

a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

aggregate demand curve

a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level

exchange rate effect

a lower price level causes the real exchange rate to depreciate, which stimulates spending on net exports

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?

aggregate demand: no change aggregate supply: shift to the left

demand shock

an event that shifts the aggregate demand curve

All of the following changes will shift the investment demand curve to the right EXCEPT

an increase in the real interest rate

An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in

an increase in unplanned inventories

All of the following explain why prices and wages are sticky EXCEPT

competition in the business sector

An increase in spending in an economy will cause a multiplied increase in gross domestic product because

consumption increases as income increases

A change in which of the following will cause the short-run aggregate supply curve to shift?

cost of all inputs

An increase in which of the following would cause the aggregate demand curve to shift to the left?

income taxes

An increase in which of the following will increase the value of the spending multiplier?

marginal propensity to consume

An increase in which of the following is most likely to cause the short-run aggregate supply curve to shift to the left?

per unit cost of production

An aggregate supply curve may be horizontal over some range because within that range

resources are underemployed and an increase in demand will be satisfied without any pressure on the price level

An increase in consumer confidence will result in which of the following in the short run?

rightward shift of the aggregate demand curve

A decrease in labor productivity will shift the

short run aggregate supply curve to the left

short-run aggregate supply curve

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed

long-run aggregate supply curve

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

An increase in the marginal propensity to consume causes an increase in which of the following?

spending multiplier

short-run equilibrium aggregate price level

the aggregate price level in the short-run macroeconomic equilibrium

AD-AS model

the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations

real wealth effect

the change in consumption brought about by a change in real wealth that results from a change in the price level

Marginal Propensity to Consume (MPC)

the increase in consumer spending when disposable income rises by $1

Marginal Propensity to Save (MPS)

the increase in household savings when disposable income rises by $1

full employment output

the level of output that results when the labor market is in equilibrium and the economy is producing at full employment

potential output

the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible

output gap

the percentage difference between actual aggregate output and potential output

short-run equilibrium aggregate output

the quantity of aggregate output produced in the short-run macroeconomic equilibrium

consumption function

the relationship between consumption spending and disposable income

A rightward shift in the short-run aggregate supply curve will occur when

the stock of physical capital increases

stabilization policy

the use of government policy to reduce the severity of recessions and rein in excessively strong expansions

inflationary gap

when aggregate output is above potential output

recessionary gap

when aggregate output is below potential output