Chapters 13 & 14

As shown in Exhibit 13-1, the rate of inflation for Year 2 is:

10 percent

Suppose the economy is on the intermediate range of the aggregate supply curve. Which of the following would reduce both real GDP and the price level?

A decrease in aggregate demand.

Which of the following are inherent in classical theory?

All of the above

The aggregate supply curve will shift to the right when the:

Amount of labor in the society increases.

Which one of the following factors will most likely cause an increase in aggregate demand?

An increase in net exports.

Which of the following will not shift the aggregate demand curve to the right?

Consumers become pessimistic about the future.

Which of the following events is the most likely to create stagflation?

Demand shock inflation.

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

Demand-pull inflation.

In the United States during the 1960s, government spending dramatically increased to fight the Vietnam War, which resulted in:

Demand-pull inflation.

Which of the following is not a reason for the downward sloping, because increases in the price level causes decreases in:

Government spending effect

When the price level falls, the total quantities of goods and services demanded:

Increases

When prices rise, consumers and businesses hold larger money balances. This reduces the supply of loanable funds, increases the interest rate, and discourages both consumption and investment. This process is called the:

Interest-rate effect

The real balances effect is the impact on real GDP caused by the ______ relationship between the price level and the real value of financial assets.

Inverse

Which of the following is true of inflation?

It is an increase in the general price level of goods and services.

Which of the following is not a component of the aggregate demand curve?

Saving

A reduction in regulation will shift the aggregate:

Supply curve leftward.

Assuming prices and wages are fully flexible, the aggregate supply curve will be:

Vertical

In the aggregate demand and supply model, the:

Vertical axis measures the average price level.

Stagflation occurs when the economy experiences

high unemployment and rapid inflation.

The aggregate demand curve is drawn downward-sloping, because increases in the price level cause decreases

total spending (real GDP)