Chapter 8 Macroeconomics
Which of the following statements is false?
"Aggregate demand" and the "quantity demanded of Real GDP" are the same. Real GDP is denominated in current-year prices.
Suppose that C=$700, I=$200, G=$200, NX=$100, and the money supply is equal to $400. Based upon these assumptions, velocity is equal to _____. If consumption and velocity both rise beyond their initial levels, then it follows that another component of spending ______ necessarily fall.
3; does not
If consumption changes because of a change in a factor other than the price level, then the
AD curve shifts
If investment changes because of a change in a factor other than the price level, then the
AD curve shifts
Which of the following will not lead to a leftward shift in the SRAS curve?
An increase in productivity
Refer to Exhibit 8.1. Assume that the economy is originally in equilibrium at point A. If businesses become more optimistic about future sales, at which point is the economy most likely to end up in the short run?
B
Refer to Exhibit 8.1. Assume the economy is originally in equilibrium at point A. If the price of oil rises, at which point is the economy most likely to end up in the short run?
D
Refer to Exhibit 8.1. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up in the short run?
D
Which of the following statements is false?
If both SRAS and AD increase, the price level necessarily rises in the short run.
Which of the following is not a factor that can shift the short-run aggregate supply curve?
NOT changes in the wage rate, NOT changes in the price of energy, NOT changes in the stock of capital goods, NOT improvements in management techniques (none of the above)
Starting from the short-run equilibrium, the following occurs: personal income taxes are cut, and labor productivity rises. What is the effect on the price level and Real GDP in the short run?
Real GDP rises and the price level necessarily remains the same.
If foreign input prices increase and the U.S. purchases those inputs, then the U.S.
SRAS curve will shift leftward and U.S. prices will rise
If wage rates rise at the same time that labor productivity increases, what is the effect on short-run aggregate supply (SRAS)?
SRAS may rise, fall, or remain constant
Starting from short-run equilibrium, the following occurs: the U.S. dollar depreciates and wage rates rise. Moreover, the effect on the economy from the dollar depreciating is stronger than the effect on the economy from rising wage rates. What is the effect on the price level and Real GDP in the short run?
The price level rises and Real GDP rises.
Refer to Exhibit 8.3. Which of the following could not have caused a shift in aggregate demand from AD1 to AD2?
a change in the price level
Refer to Exhibit 8.4. Which of the following could not have caused a shift in aggregate supply from SRAS1 to SRAS2?
a change in the price level
Which of the following will cause a movement from 1 point on an AD curve to another point on the same AD curve?
a change in the price level
Suppose a drop in stock prices makes people feel less wealthy. This would cause _____ the economy's AD curve.
a leftward shift of
Which of the following is an example of an adverse supply shock?
a nationwide drought lasting for many months, an outbreak of war among several of the Middle Eastern oil-producing countries, an influenza virus that affects 50% of the labor force for 2 weeks.
Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause _____ of some consumption plans, resulting in ______ the AD curve.
acceleration; a rightward shift
Which of the following would cause a rightward shift in the AD curve?
an increase in government purchases of goods and services.
Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar. The dollar has ________, making Japanese goods ______ expensive for Americans.
appreciated; less
A rise in wage rates
causes the SRAS curve to shift leftward
Personal income taxes rise. This lowers _____, which lowers _____ and the _____ curve shifts ______.
consumption; aggregate demand (AD); AD; leftward
If the price level remains constant but the wage rate increases, then there will be _____ in production and the SRAS curve will shift _____.
decrease; leftward
As income taxes rise, disposable income _____, causing ______ the AD curve.
decreases; a leftward shift of
Suppose consumption decreases at each price level. As a result, aggregate demand ______, and the AD curve shifts _____.
decreases; leftward
Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar. The dollar has ________, making American goods ______ expensive for Mexicans.
depreciated; less
Aggregate demand curves are
downward sloping
If consumption changes because of a change in the price level, then the
economy moves from 1 point on an AD curve to another point on the same curve
If investment changes because of a change in the price level, then the
economy moves from 1 point on an AD curve to another point on the same curve
A rise in foreign real national income tends to raise U.S. ______, shifting the U.S. AD curve to the _____.
exports; right
Velocity is the average number of times a dollar is spent to buy
final goods and services in a year
Business optimism about future sales tends to _____ investment expenditures, shifting the U.S. AD curve to the _____.
increase; right
An increase in the money supply may _____ total expenditures, leading to a _____ shift of the AD curve.
increase; rightward
One reason the AD curve is downward sloping is the ______ effect.
interest rate
Ceteris paribus, Real GDP and the unemployment rate are
inversely related
Business taxes fall. This raises ______, which raises _______ and the ______ curve shifts rightward.
investment; aggregate demand (AD); AD
The expectation of lower future prices is a
leftward shifter of the AD curve
As the interest rate rises, businesses invest _____ and the AD curve shifts to the _____.
less; left
An appreciation of the U.S. dollar tends to _____ U.S. net exports and shift the U.S. AD curve to the _____.
lower; left
Greater wealth makes people ______ willing to spend, causing ______ the economy's AD curve.
more; a rightward shift
Which of the following factors can shift the AD curve?
net exports, government purchases, the money supply
One of the reasons why the AD curve slopes downward is that as the
price level falls, purchasing power rises
A fall in the price level changes the purchasing power of money. This is relevant to the ______ effect.
real balance
The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the
real balance effect.
An aggregate demand (AD) curve shows the
real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
A short-run aggregate supply curve shows the
real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
The interest rate effect is one of the
reasons why an AD curve is downward-sloping
The real balance effect is one of the
reasons why an AD curve is downward-sloping
An increase in the interest rate _____ purchases of consumer _____.
reduces; durables
The expectation of higher future income is a
rightward shifter of the AD curve.
An increase in labor's productivity will cause the SRAS curve to shift ______ and the price level to _____.
rightward; decrease
As the interest rate rises, the cost of a given investment project _____ and businesses invest _____.
rises; less
An increase in the price of nonlabor inputs
shifts the SRAS curve leftward
The product of _____ and _____ is equal to the total amount of spending in an economy.
the money supply; velocity
Changes in which of the following will not cause the SRAS curve to shift?
the price level
An economic policy initiative results in the AD curve shifting to the right. As a result,
the price level will rise. Real GDP will rise in the short run
The real balance effect helps to create "a change in
the quantity demanded of Real GDP."
The real balance effect describes the change in
the value of cash holdings that results from a change in the price level
If some of a person's wealth is in cash, it follows that
this person's monetary wealth will change as the price level changes.
The short-run aggregate supply curve is _____ and the long-run aggregate supply curve is _____.
upward sloping; vertical
