Chapter 12- preview
A decrease in the money supply is likely to cause a(n) ______ in interest rates, and subsequent ______ in investments and aggregate demand.
increase, decreases
The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______.
increases money demand which increases interest rates and decreases the amount of real GDP
If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.
increases; right
In the immediate short run ______.
input prices and output prices are fixed
Which of the following explain the reasons for the downward slope of the aggregate demand curve?
A higher price level decreases the purchasing power of the publics' accumulated savings balances.
How is the real-balances effect defined?
A higher price level reduces the purchasing power of the public's accumulated savings balances.
What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?
Aggregate supply
True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded
False
Which of the following will increase per-unit costs and reduce short-run aggregate supply?
Higher business taxes
Which of the following enhance the expected returns on investment and thus increase aggregate demand?
New and improved technology
Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?
The level of consumption increases, investment increases, and net exports increase.
A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to ______.
a decline in firms' expected returns
Consumer wealth is defined as the total value of ______.
assets minus the total value of liabilities
Investment spending refers to...
capital goods
A decline in the price level is called
deflation
An increase in productivity ______.
enables more output with limited resources
Technological advancements will ______ expected returns on investment and ______ aggregate demand.
enhance; increase
In the long-run, output prices and input prices are ______.
flexible
In the short run, output prices are ______ and ______ prices are ______.
flexible; input; sticky
Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being (blank) than potential GDP.
greater
Higher expected returns on investment will ______.
increase the demand for capital and shift the aggregate demand curve to the right
A higher business tax will ______ per-unit costs and ______ short-run aggregate supply.
increase; decrease
A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.
increase; left
What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply?
input prices
The equilibrium price level and equilibrium output is determined by the ______.
intersection of the aggregate demand curve and the aggregate supply curve
(blank) spending will fall if firms' outlook on the economy is pessimistic.
investment
Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.
investment spending
If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the (blank)
left
An increase in the money supply will ______ the interest rate, increase investment and ______ aggregate demand.
lower; increase
An increase in real interest rates will ______ investment spending and ______ aggregate demand.
lower; reduce
The short-run is the period in which ______.
output prices are flexible but input prices are fixed or highly inflexible
Aggregate supply is represented as a schedule or curve showing the relationship between a nation's (blank) level (index) and the amount of real domestic output that firms in the economy produce.
price
Total output divided by total inputs is the formula for
productivity
Productivity is the measure of the relationship between a nation's level of ______.
real output and the amount of resources used to produce that output
The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.
real-balances effect
A decrease in aggregate demand with constant aggregate supply can result in ______.
recession
An input price is a(n) ______ price while an output price makes up the price level.
resource
The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the
right
Changes in consumer spending, investment, government spending and net export spending will:
shift the aggregate demand curve
A decrease in borrowing by consumers for consumption spending will ______.
shift the aggregate demand curve to the left
An increase in government spending is likely to _____.
shift the aggregate demand curve to the right
When consumers increase their consumption spending by borrowing, the aggregate demand curve ______.
shifts to the right
A leftward shift in the aggregate (blank) curve leads to cost-push inflation.
supply
The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______.
taxes and government regulations
The intersection of the aggregate demand and aggregate supply curves determines ______.
the equilibrium price level and equilibrium real GDP
True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.
true
True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices.
true
The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies ______.
typically change price levels and output levels simultaneously
An unexpected increase in asset values that results in an increase in consumer spending is called the (blank) effect.
wealth
An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.
wealth
An increase in the price level results in which of the following effects?
-Decrease in the level of consumption -Decrease in investments
Which of the following influence expected returns on investment projects?
-Degree of excess capacity -Technology -Business taxes -Expectations about future business conditions
What happened to the U.S. economy in the 1990s?
-GDP grew by 4% annually. -Unemployment fell to 4%.
Which of the following are the four components or determinants of aggregate demand?
-Net export spending -Consumer spending -Investment spending -Government spending
Select all the choices that explain what happens with dropping price levels.
-People demand more output. -Real balances rise.
Select all the following that were characteristic of economic conditions in the United States during the 1990s.
-Strong growth -Very low inflation -Full employment
What is the result of an increase in the money supply?
Lower interest rate, increased investment and increased aggregate demand
What is one result of a decrease in aggregate demand?
Recession
What will a decrease in US net exports do?
Shift the aggregate demand curve leftward
What will a rise in net exports do?
Shift the aggregate demand curve to the right
Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?
The short-run curve
Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher.
True
Deflation occurs when there is ______.
a decreasing aggregate price level
An increase in productivity is related to ______.
a reduction in per-unit costs
The wealth effect is reflected by ______.
a rightward shift of the aggregate demand curve.
A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.
a shift of
Investment spending refers to ______.
adding to physical capital
A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called
aggregate demand
A wage decrease shifts the ______.
aggregate supply curve to the right
The determinants of aggregate supply are variables that ______.
cause the aggregate supply curve to shift
A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation
cost-push
A decrease in aggregate demand with constant aggregate supply results in _____.
cyclical unemployment
An increase in the interest rate and subsequent decreases in investment and aggregate demand could be the result of a (blank) in the money supply.
decrease
Cyclical unemployment and recession often arise from (blank) in aggregate demand.
decrease
When interest rates are higher, businesses and consumers will:
decrease investment spending and interest-sensitive consumption spending.
A decline in expected returns will ______ investment and shift the aggregate demand curve to the ______.
decrease, left
An increase in real interest rates will ______ investment spending and ______ borrowing costs.
decrease; increase
A wage decrease will (blank) per-unit production costs and shift the aggregate supply (AS) curve to the (blank)
decrease; right
If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.
decreases; left
An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.
demand-pull
The interest rate effect causes the aggregate demand to be ______.
downward sloping
The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.
false
When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.
interest-rate
Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______.
raise; interest rate
The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer (blank).
wealth