ECON 1000 Ch. 11

Self-adjustment of markets is assumed in:

Classical economic theory.

Which of the following will occur if the price level is below the equilibrium level? Consumers will bid the price level up by competing for goods The quantity demanded will increase as the price level increases The quantity supplied will decrease as the price level increases Producers will bid the price level down by competing for buyers

Consumers will bid the price level up by competing for goods

Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

Decrease; increase.

According to monetary theories, a decrease in the money supply shifts the aggregate:

Demand curve to the left.

According to monetary theories, an increase in the money supply shifts the aggregate:

Demand curve to the right.

External shocks to an economy include: Innovation, population growth, and spending behavior. Disruptions in trade, wars, and natural disasters. Tax policy, government spending, and the availability of money. Jobs, prices, and growth.

Disruptions in trade, wars, and natural disasters.

Which of the following explanations of the business cycle focuses on both aggregate supply and aggregate demand shifts?

Eclectic explanations

According to the text, which of the following is not a determinant of macroeconomic outcomes? Technological change A major earthquake Economic growth An increase in the money supply

Economic growth

Both Keynesian and monetarist theories believe that _______ aggregate _______ causes inflation.

Excessive; demand

According to the real balances effect, when the price level:

Falls, cash is worth more and therefore people buy more.

Which of the following are policy levers? Population growth, spending behavior, and invention Wars, natural disasters, and trade disruptions Government regulation, tax policy, and the availability of money Jobs, prices, and growth

Government regulation, tax policy, and the availability of money

According to Say's Law, all goods produced will be sold:

If prices are flexible and free to change.

Ceteris paribus, a leftward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

Increase; decrease

Which of the following is a mechanism Keynes advocated for dealing with a situation of depressed output? Laissez-faire Raising taxes Increasing government expenditure Increasing supply incentives

Increasing government expenditure

According to the text, which of the following is a macroeconomic outcome? Internal market forces Policy levers International balance Population growth

International balance

Which of the following economic theories focus on aggregate demand to explain changes in unemployment and inflation? Classical and supply-side Keynesian and monetarist Classical and Keynesian Classical but not monetarist

Keynesian and monetarist

At the intersection of the aggregate supply and aggregate demand curves, the economy is experiencing:

Macro equilibrium.

Which of the following is not included in the study of macroeconomics? Business cycles The unemployment rate Inflation Market structures

Market structures

According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy:

More American-made products.

Which of the following stresses the inability of the government to improve short-run market outcomes? Monetary policy New classical economics Supply-side policy Fiscal policy

New classical economics

According to the text, which of the following is a determinant of macroeconomic performance? Prices Policy levers The unemployment rate The international value of the dollar

Policy levers

The aggregate supply curve is positively sloped because as the price level increases:

Profit margins increase in the short run.

When prices fall and the cash balances that you hold in your wallet are worth more allowing you to purchase more with your money, then this explains why the aggregate demand curve is downward sloping. The effect that describes this phenomena is the:

Real balances effect

Monetary policy can best cure a recession by:

Reducing interest rate, which shifts aggregate demand to the right

Supply side levers were utilized during which Presidential administration?

Ronald Reagan

According to supply-side theories, if the costs of production rise, then aggregate:

Supply shifts to the left.

A News Wire article in the textbook is titled "Hurricane Damage to Gulf Ports Delays Deliveries, Raises Costs." Ceteris paribus, if production costs increase, then aggregate:

Supply will shift to the left.

Individual employment and training programs are levers most likely to be advocated by:

Supply-side economists.

Which of the following is a measure of overall economic well-being for the United States? The U.S. unemployment rate U.S. population growth The behavior of U.S. monopolies The price of fuel in Oregon

The U.S. unemployment rate

Which of the following is definitely true if the economy is in macro equilibrium? The price level is optimal, but the output level may not be The output level is optimal, but the price level may not be The price level and the output level are both optimal The price level and the output level may or may not be optimal.

The price level and the output level may or may not be optimal.

Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded? Aggregate demand will shift to the right Aggregate supply will shift to the left There will be a shortage There will be a surplus

There will be a shortage

Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases? The purchasing power of money decreases and people buy fewer goods. U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods. U.S. production costs stay constant and profits for businesses increase. The demand for loans decreases so interest rates decline and loan-financed purchases increase.

U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods.

The inability of labor-force participants to find jobs is known as:

Unemployment.

Say's Law implies that:

Whatever is produced will be sold.

Macro equilibrium always occurs:

When aggregate demand equals aggregate supply at the average price level.

interest rate effect

change in price level affects amount of money people people need to borrow with affects interest rates

In the early 1930s, President Hoover told Americans that prosperity was just "around the corner." He was expressing the views of ______ economic theory.

classical

If the stock market plunged over the next week, consumers would:

demand fewer goods and services.

Keynesian economics is known as a _____ theory.

demand-side

Supply-side policies

economic policies designed to stimulate the economy by increasing production

According to Keynesian theory, the correct fiscal policy action to stimulate the economy would be to:

increase government expenditures to increase aggregate demand.

Inflation

increase in average level of prices

Name the Macro Outcomes

output: total value of G&S Jobs: levels of employment & Unemployment Prices: average pice of g&s Growth: year-to-year expansion in production capacity International balancesL international value of the $

Internal market forces

population growth, spending behavior, invention and innovation

real balances effect

primary explanation for the downward slope of the aggregate demand curve is that cheaper prices make your $ more valuable

full employment GDP

rate of real output produced at full eployment

Say's Law

supply creates its own demand

policy levers

tax policy, government spending, changes in interest rates, credit availability and money, trade policy, immigration policy, and regulation

Aggregate Demand

the amount of goods and services in the economy that will be purchased at all possible price levels

Aggregate Supply

the total quantity of output producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus

monetary policy

use of money and credit controls to influence macro activity

External shocks

wars, natural disasters, terrorist attacks, trade disruptions

The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is:

Aggregate demand.

Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus? Aggregate supply will decrease or shift to the left. Aggregate supply will increase or shift to the right. Aggregate demand will increase or shift to the right. Aggregate demand will decrease or shift to the left.

Aggregate supply will increase or shift to the right.

The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as:

Aggregate supply.

A News Wire article in the textbook is titled "Hurricane Damage to Gulf Ports Delays Deliveries, Raises Costs." Increased costs are likely to cause:

An increase in the equilibrium price level and a decrease in real equilibrium output.