Chapter 20 FINAL review questions

Which of the following explains why production rises in most years?

A. increases in the labor force B. increases in the capital stock C. advances in technological knowledge *D. All of the above

According to classical macroeconomic theory, changes in the money supply affect

Nominal variables, but not real variables

the classical dichotomy and monetary neutrality are represented graphically by

a vertical long-run aggregate supply curve

When taxes decrease, consumption

increases as shown by a shift of the aggregate demand curve to the right.

the aggregate quantity of goods and services demanded changes as the price level rises because

real wealth falls, interest rates rise, and the dollar appreciates.

An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level

rises, shifting aggregate supply left.

If the price level falls, the real value of a dollar

rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve

Aggregate Demand includes

the quantity of goods and services households, firms, the government, and customer abroad want to buy.

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.