econ 104 exam 3
The economy experiences stagflation
1
The economy experiences a recession
1 and 3
The economy experiences short-term inflation
1 and 4
The formula for the simple deposit multiplier is
1/RR
Which of points A, B, C, or D can represent a long-run equilibrium?
A and C
If there is increased pessimism about the future of the economy, the AD curve will shift from
AD0 to AD1
The economic definition of money is
Any asset that people are generally willing to accept in exchange for goods and services.
Distinguish among money, income, and wealth.
A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts.
Suppose that initially the economy is at point A. Then aggregate demand increases from AD1 to AD2. The long-run equilibrium point will be at point
C
Why does the short-run aggregate supply curve (SRAS) slope upward?
Contracts keep wages "sticky", Firms and workers fail to predict changes in the price level, and Prices of final goods rise more quickly than the prices of inputs.
Suppose that initially the economy is at point A. Then aggregate demand increases from AD1 to AD2. The new short-run equilibrium will be at point
D
When the price level rises from 104 to 124, real GDP falls from $5 trillion to $4 trillion. What is a possible explanation for this event?
Falling exports, Less investment, Decreased consumption
What's the difference between commodity money and fiat money?
Fiat money has no value except as money, whereas commodity money has value independent of its use as money.
Which of the following statements is correct if real GDP in the United States declined by more during the 2007minus−2009 recession than did real GDP in Canada, China, and other trading partners of the United States?
Imports to the United States fell more than the U.S. exports, leading to an increase in net exports.
The Federal Reserve uses two definitions of the money supply, M1 and M2, because
M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply.
Suppose you decide to withdraw $100 in currency from your checking account. What is the effect on M1? Ignore any actions the bank may take as a result of your having withdrawn the $100.
M1 remains unchanged.
Which of the following is included in M2 but not M1?
Money market deposit accounts in banks
Even though real GDP in 1970 was slightly greater than real GDP in 1969, the unemployment rate increased substantially from 1969 to 1970. Which of the following explains how unemployment could have increased even though output did not change?
Potential GDP increased significantly, but actual GDP did not, and thus there is unemployment.
The graph to the right shows a 45degrees°-line (Keynesian cross) diagram. The economy is currently in macroeconomic equilibrium at output level Yo. Suppose that the price level increases the price level increases. 1) Use the line tool to show a possible position for the new aggregate expenditures line. Label this line AE2. 2) Use the point drawing tool to show the new equilibrium levels of GDP and expenditures.Label this point 'B'.
SWITCH LINES ON GRAPH
In 1969, actual real GDP was greater than potential real GDP. Which of the following best explains this?
The economy can produce a level of GDP above potential GDP in the short run.
What is NOT true when the economy is in macroeconomic equilibrium?
When the economy is at long-run equilibrium, firms will have excess capacity.
How do the banks "create money"?
When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands
Which of the following factors does not cause the aggregate demand curve to shift?
a change in the price level
The international-trade effect refers to the fact that an increase in the price level will result in
a decrease in exports and an increase in imports.
Which of the following would cause a decrease in aggregate demand?
a decrease in government spending
If the inflation rate for 1970 is greater than the inflation rate for 1969, it is likely that the recession was caused by
a negative supply shock
What causes the short-run aggregate supply curve to shift to the right?
a positive technological change
A supply shock is
a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve.
Stagflation occurs when
a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP
The difference between aggregate expenditure and aggregate demand is that
aggregate demand shows the relationship between the price level and the level of aggregate expenditure when all other factors that affect aggregate expenditure are held constant; aggregate expenditure is a point on the aggregate demand curve at a specific price.
If something is to be considered as money, it has to fulfill
all four functions
The price level that is currently higher than expected will decrease (shift leftward) the SRAS curve because this is a change in
an adjustment to past errors in expectations about future prices
What causes the short-run aggregate supply curve to shift to the left?
an increase in the expected price of an important natural resource
The aggregate demand curve is downward sloping because
an increase in the price level reduces real money holdings, which reduces the amount of expenditures.
the aggregate demand curve does not shift
because of the price level change.
How can government policies shift the aggregate demand curve to the right?
by increasing government purchases
Consider the two aggregate demand curves in the graph at right. A movement from point A to point C could be the result of a
change in the expectations of households.
A movement from point A to point B on SRAS1 could be the result of a
change in the price level
Consider the two aggregate demand curves in the graph at right. A movement from point A to point B on AD1 could be the result of a
change in the price level
The long-run aggregate supply curve is vertical because in the long run,
changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.
Stagflation is a
combination of inflation and recession
The federal government increases taxes in an attempt to reduce a budget deficit. Because this is a change in _______ it will cause a _______ the aggregate demand curve.
consumption shift to the left in
The aggregate expenditure model can be used to derive the aggregate demand curve. If the price level in the economy increases, then, according to the aggregate expenditure model, the level of output demanded will
decrease (kind of pic)
In the long run, changes in the price level
do not affect the level of real GDP.
An economics student makes the following statement: "It's easy to understand why the aggregate demand curve is downward sloping: When the price level increases, consumers substitute into less expensive products, thereby decreasing total spending in the economy." This statement is false because the aggregate demand curve is
downward sloping because as prices rise, consumer real wealth declines, interest rates rise, and exports become more expensive.
The use of money
eliminates the double coincidence of wants, reduces the transaction costs of exchange, allows for greater specialization.
An increase in what the price level is expected to be in the future will decrease (shift leftward) the SRAS curve because this is a change in
expectations about future prices
The U.S. dollar can best be described as
fiat money
Aggregate demand (AD) is comprised of expenditure components that include:
government spending, consumption, investment, and net exports.
The interest rate effect refers to the fact that a higher price level results in
higher interest rates and lower investment.
The short-run aggregate supply curve slopes upward because of all of the following reasons except
in the short run, an unexpected change in the price of an important resource can change the cost to firms.
Firms become more optimistic and increase their spending on machinery and equipment. Because this is a change in _______ it will cause a _______ the aggregate demand curve.
investment rightward shift
An increase in interest rates will cause a _____ the aggregate demand curve.
leftward shift of
An increase in state income taxes will cause a ______ the aggregate demand curve.
leftward shift of
When sellers are willing to accept money in exchange for goods and services, money is acting as a
medium of exchange.
In the diagram to the right, moving from point A to point B is called a ______ the AD curve.
movement along
A change in the price level causes a _____ the short-run aggregate supply (SRAS) curve.
movement along (A to B)
An increase in the price level will cause a ________ the aggregate demand curve
movement up along
Money serves as a standard of deferred payment when
payments agreed to today but made in the future are in terms of money.
Money serves as a unit of account when
prices of goods and services are stated in terms of money
A faster income growth in other countries will cause a ______ the U.S. aggregate demand curve.
rightward shift of
An increase in government purchases will cause a _______ the aggregate demand curve.
rightward shift of
Moving from point A to point C is referred to as a _____ the AD curve
shift in
A change in any other factor causes a _____ the SRAS curve.
shift in (B to C)
More capital accumulation will cause the long-run aggregate supply curve to
shift to the right
if there is an increase in expected future prices
the SRAS graph will shift to the left
if there is an increase in the adjustment of workers' and firms' prior underestimation of the price level
the SRAS graph will shift to the left
if there is an increase in the expected price of an important natural resource
the SRAS graph will shift to the left
if there is a technological change
the SRAS graph will shift to the right
if there is an increase in productivity
the SRAS graph will shift to the right
if there is an increase in the labor force or capital accumulation
the SRAS graph will shift to the right
What will cause the long-run aggregate supply curve to shift to the right?
the accumulation of more machinery and equipment, technological change, an increase in the number of workers in the economy
Menu costs are
the costs to firms of changing prices.
A double coincidence of wants refers to
the fact that for a barter trade to take place between two people, each person must want what the other one has.
A movement from point A to point C could be the result of a change in
the labor force.
The position of the long-run aggregate supply (LRAS) curve is determined by
the number of workers, the amount of capital, and the available technology.
An increase in the price level will not change the SRAS curve because this is a change in
the price level
The U.S. economy experiences 4 percent inflation. Because this is a change in _____ it will cause a ______ the aggregate demand curve.
the price level movement along
The aggregate demand curve shows the relationship between
the price level and output demand
What relationship is shown by the aggregate demand curve? The aggregate demand curve shows the relationship between
the price level and the quantity of real GDP demanded by households, firms, and the government.
What relationship is shown by the aggregate supply curve? The short run aggregate supply curve shows the relationship in the short run between
the price level and the quantity of real GDP supplied by firms.
An unexpected increase in the price of an important raw material will decrease (shift leftward) the SRAS curve because this is a change in
the price of an important natural resource
An increase in the labor force will increase (shift rightward) the SRAS curve because this is a change in
the productive capacity of the economy
The central bank of a country controls the money supply, which equals the currency held by
the public plus their checking account balances.
If the price level increases, then
there will be a movement up along a stationary aggregate demand curve.
Increases in government purchasesIncreases in government purchases will make the aggregate demandcurve shift
to the right
If coins could have been easily used to purchase goods and services in other areas, the coins would also have some intrinsic value.
true
If menu costs were eliminated, the short-run aggregate supply curve will be upward sloping because of
wage price stickiness and slow wage adjustment by firms
Consider the downward-sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point B (a movement up along the AD curve) or from point A to point C (a movement down along the AD curve)? (AD curve down BAC)
wealth effect interest rate effect
The wealth effect refers to the fact that
when the price level falls, the real value of household wealth rises, and so will consumption.
Compared to the U.S. aggregate demand curve, the reason that the demand curve for an individual product, such as bananas, slopes downward is
different, because consumers can substitute between individual products.
Give the three reasons the aggregate demand curve slopes downward. The U.S. aggregate demand curve slopes downward due to all of the following reasons except the
government-spending effect, where a change in the price level affects government purchases.
