Econ 105 - Chapter 12 (Aggregate Demand and Aggregate Supply)

If the real output is 20 units and the 10 units of input are needed to produce that quantity, and the price of each input is $2, then the per-unit production cost is:

1 (production cost=total input cost/total output)

If real output is 20 units and 10 units of inputs are needed to produce that quantity, then the productivity is:

2 (productivity = output/input)

The United States' economy experiences a recessionary period with cyclical unemployment in ___.

2008

In discussing aggregate supply, economists identify ___ time horizons.

3 (immediate short run, short run, long run)

Efficiency wages are wages that are most often:

above equilibrium to encourage better performance

An increase in aggregate demand with constant aggregate supply will result in ___ employment levels.

above-full

A schedule or curve that shows the amounts of real output that buyers collectively desire to purchase at each possible price level is called:

aggregate demand

Wage increases shift the:

aggregate supply curve to the left

A wage decrease shifts the:

aggregate supply curve to the right

___ ___ can be represented as a schedule or curve showing the relationship between the price level and the amount of real domestic output that firms within the economy produce.

aggregate; supply

Demand-pull inflation, assuming constant aggregate supply, results in ___ in the quantity demanded for real GDP.

an increase

The aggregate demand curve slopes downward because it reflects:

an inverse relationship between the price level and the amount of real output demanded

When firms realize that excess capacity is shrinking, investment spending

and aggregate demand will increase

In terms of aggregate supply and aggregate demand, the equilibrium price level is:

at the point of intersection of the aggregate demand and aggregate supply curves

A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to:

a decline in firms' expected returns

The effect of an unexpected decline in asset values on aggregate demand can be summarized as:

a decline in wealth prompts consumers to save more and spend less which shifts the aggregate demand curve to the left

A decline in aggregate supply, assuming constant aggregate demand, will result in ___ in the quantity demanded for real GDP.

a decrease

Which of the following exemplify the reasons for the downward slope of the aggregate demand curve?

a higher price level increases the demand for money and interest rates, assuming a fixed money supply; a higher price level decreases the purchasing power of the publics' accumulated savings balances.

The real-balances effect can be defined as:

a higher price level reduces the purchasing power of the public's accumulated savings balances.

The wealth effect is reflected by:

a rightward shift of the aggregate demand curve

The determinant of aggregate supply cause ___ the aggregate supply curve.

a shift of

The determinants of aggregate supply are variables that:

cause the aggregate supply curve to shift

Which of the following are determinants of aggregate demand?

change in investment spending; change in consumer wealth

Which of the following are determinants of aggregate demand?

change in net export spending; change in consumer spending; change in government spending; change in investment spending

Which of the following are determinants of aggregate supply?

changes in legal-institutional environments; changes in input prices; changes in productivity

Which of the following contribute to shifts in the aggregate demand curve?

changes to income taxes; the spending multiplier

According the the foreign purchases effect, an increase in domestic price levels will ___ net exports.

decrease

All else equal a/n ___ in aggregate demand (AD), assuming constant aggregate supply, will result in a/an decrease in the quantity demanded for real GDP.

decrease

Businesses and consumers will ___ investment spending and interest sensitive consumption spending, respectively, when interest rates are higher.

decrease

"Supply-side" economists argue that increased regulations on firms by the government will ___.

decrease aggregate supply and increase prices

An increase in the price level will:

decrease consumption

An increase in interest rates will ___ investment spending and ___ aggregate demand.

decrease; decrease

A business subsidy will ___ production costs and ___ short run aggregate supply.

decrease; increase

A decline in expected returns will ___ investment and shift the aggregate demand curve to the ___.

decrease; left

A wage decrease will ___ per-unit production costs and shift the aggregate supply (AS) curve to the ___.

decrease; right

A higher price level ___ the real value or purchasing power of the publics accumulated savings balances.

decreases

When the price level rises, real GDP demanded ___.

decreases

If consumers expect lower future prices, current consumption spending ___ and the aggregate demand curve shifts to the ___.

decreases; left

A decline in the price level is called ___.

deflation

An increase in aggregate demand beyond the full-employment level of output that causes inflation is called:

demand-pull inflation

The "other things" that change other than the price level and shift the aggregate demand curve are called ___ of aggregate demand or aggregate demand shifters.

determinants

A decline in the rate of inflation is called:

disinflation

The price of foreign currencies in terms of the US dollars is called the:

dollar's exchange rate

The interest rate effect causes the aggregate demand to be:

downward sloping

New and improved technologies will increase investment spending by:

enhancing expected return on investment

Which of the following influence expected returns on the investment projects?

expectations about future business conditions; business taxes; degree of excess capacity; technology

When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ___ and US imports will ___.

fall; rise

In the immediate short run, output prices are typically fixed because:

firms enter into supply contracts with their customers

In the short run, labor contracts that cover several months or years cause wages to be ___ for the duration of the contract.

fixed

In the short run, output prices are ___ and input prices are ___.

flexible; inflexible

Which of the following statements best summarize the effect of rising national incomes abroad on US exports and aggregate demand?

foreigners are encouraged to purchase more U.S. goods; US aggregate demand shifts rightward; net exports rise

When the US price level rises relative to foreign price levels and exchange rates are not very responsive:

foreigners buy fewer US goods and Americans buy more foreign goods

Which of the following will increase per-unit costs and reduce short-run aggregate supply?

higher business taxes

Which of the following explain the reason for the up-sloping aggregate supply curve?

higher prices mean higher profits when input costs are fixed; input costs are fixed, but output costs are variable

If output prices are fixed regardless of quantity sold, the immediate short run aggregate supply curve will be a(n) ___ line.

horizontal

Which of the following are main sources of productivity?

improved production technology; better trained workforce; improved forms of business enterprises; better educated workforce

The long-run aggregate supply curve is vertical because:

in the long run the economy will produce at full-employment output levels no matter what the price is

Aggregate demand will rise if consumers expect prices to ___ in the future.

increase

An increase in consumer wealth prompts consumers to decrease savings and ___ spending.

increase

New and improved technology, seen as investment spending by firms will lead to a(n) ___ in aggregate demand.

increase

The aggregate demand curve will shift to the right when consumers expect their future incomes to ___.

increase

Higher expected returns on investment will:

increase the demand for capital and shift the aggregate demand curve to the right

An appreciation of the US real exchange rate will ___ imports and ___ exports while depreciation of the US exchange will ___ imports and ___ exports.

increase; decrease; decrease; increase

A wage increase will ___ per-unit production costs and shift the aggregate supply curve to the ___.

increase; left

Which of the following result from a reduction in personal income tax rates on consumers?

increased take-home income; increasing consumer purchases at each possible price level

The interest-rate effect is when a higher price level ___ the demand for money by increasing the interest rate, assuming a fixed money supply.

increases

A decrease in the price of an imported resource ___ US aggregate supply, while an increase in the price of an imported resource ___ US aggregate supply.

increases; decreases

The downward sloping aggregate demand curve indicates that there is a(n) ___ relationship between the price level and real GDP.

indirect

Which of the following is not a reason for the price level to be inflexible in the face of declining aggregate demand

inflation

In the short run, output prices are flexible and ___ prices are sticky.

input

In the immediate short run:

input prices and output prices are fixed

With regard to aggregate supply in the long run:

input prices and output prices can vary

In the short run:

input prices are fixed and output prices can vary

The relationship between the price level and total output is different in each of the three time horizons because:

input prices are stickier than output prices

Investment spending depends on the real ___ rate and the expected return on ___.

interest; investment

Which of the following are the four components or determinants of aggregate demand?

investment spending; government spending; consumer spending; net export spending

A decline in investment spending at each level will shift the aggregate demand curve to the ___.

left

A decrease in borrowing by consumers for consumption purposes will shift the aggregate demand curve to the ___.

left

An increase in business taxes will shift the short-run aggregate supply (SRAS) curve to the ___.

left

If consumers increase their saving rate in order to pay off their debts the aggregate demand curve will shift to the ___.

left

The aggregate demand curve will shift to the ___ when US new exports decline.

left

The aggregate demand curve will shift to the ___ when there is a reduction in government purchases.

left

Input prices and output prices are flexible in the ___-run.

long

An increase in the money supply will ___ the interest rate, ___ investment and ___ aggregate demand.

lower; increase; increase

An increase in real interest rates will ___ investment spending and ___ aggregate demand.

lower; reduce

A legal floor placed on wages is called a:

minimum wage

An increase in the interest rate and subsequent decreases in investment and aggregate demand could be the result of a decrease in the ___ supply.

money

Assuming constant price levels, any initial decrease in aggregate demand results in the ___ being at full strength.

multiplier

Identify facts other than the price level, that would cause net exports to change.

national income abroad; changes in exchange rates

Menu costs refer to the additional costs:

of changing listed prices

For any increase in aggregate demand, the resulting increase in real ___ will be small, the greater the increase in price level.

output

All recent recessions in the United States have produced a decrease in ___ but not a decrease in ___.

output; prices

____ is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.

productivity

Efficiency wages are usually set by an employer to:

provide an incentive for better performance

Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ___ the price paid for its use, otherwise known as the ___.

raise; interest rate

The determinant of aggregate supply affect profits by:

raising or lowering per-unit production costs at each price level

The immediate short run, short run and long run are the three time horizons that influence the relationship between the price level and the amount of:

real GDP

An input price is a(n) ___ price while an output price makes up the price level.

resource

A change in interest rate may result from a change in the money supply, while the "interest-rate effect":

results from a change in price level

A tax cut will shift the aggregate demand (AD) curve to the ___.

right

An economy that is experiencing demand-pull inflation will see that the aggregate demand curve move to the ___.

right

An increase in exports relative to imports will shift the aggregate demand (AD) curve to the ___.

right

An increase in government purchases will shift the aggregate demand (AD) curve to the ___.

right

An increase in investment spending at each price level will shift the aggregate demand (AD) curve to the ___.

right

An increase in productivity will shift the aggregate supply curve to the ___.

right

When consumers increase their consumption spending by borrowing, the aggregate demand curve will shift to the ___.

right

If firms are optimistic about future business conditions, investment will ___ (rise or fall_.

rise

When price levels fall, real GDP demanded will ___.

rise

Deregulation that results in accounting manipulations, monopolization, and business failures is likely to

shift the aggregate supply curve to the left

Changes that reduce per-unit production costs will:

shift the aggregate supply curve to the right

For any initial increase in aggregate demand, the resulting multiplier effect will be ___ the greater the ___ in the price level.

smaller; increase

The equilibrium price level and equilibrium output is determined by the intersection of the aggregate demand curve and the aggregate ___ curve.

supply

The two changes of the legal-institutional environment that will shift the aggregate supply curve are:

taxes and government regulations

The aggregate demand curve would shift to the left if:

taxes were increased

The intersection of the aggregate demand and aggregate supply curve determine:

the equilibrium price level and equilibrium real GDP

A downward-sloping aggregate demand curve indicates an inverse relationship between:

the price level and real GDP

The dollar's exchange rate is the:

the price of foreign currencies in terms of the US dollar

Businesses will invest less if:

they are pessimistic about future business conditions

Productivity can be illustrated in the formula:

total output divided by total input

Consumer wealth is defined as the:

total value of assets minus total value liabilities

True of false: Emphasis is on the short-run aggregate supply because this is the version of the aggregate supply acknowledges changes in output and prices.

true

At full employment, the long run aggregate supply curve is ___.

vertical

In the long run the aggregate supply curve will be:

vertical

Which of the following describe why wages are inflexible downward?

wages and salaries of non-union workers are usually adjusted only once a year; large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract

An unexpected increase in asset values that results in an increase in consumer spending is called the ___ effect.

wealth

Which statements summarize why the income and substitution effects do not explain the downward sloping aggregate demand curve?

when general price level is lower, there is not necessarily an increase in nominal income; when the general price level falls there is no substitution for all domestically produced goods

Other things being equal, a change in the price level will change the amount of aggregate spending and therefore change the amount of real domestic ___.

GDP

Between 1996 and 2000, the U.S. economy achieved GDP levels that exceeded full-employment without inflation. Which factor below explains this?

Increased productivity

Economists view investment spending on which of the following?

Physical captial

Which of the following is not a reason that supply-side proponents are in favor of deregulation?

Reduces per-unit costs and shifts aggregate supply curve to the left

Which of the following statements best summarizes the effect of a decline in the price level on consumption, investment and net exports?

The level of consumption increases, investment increases and net exports increases.

Which of the following best describe the effects of a depreciation of the US dollar on production costs and aggregate supply (AS)?

U.S. firms obtain less foreign currency with each dollar; a shift of the AS curve leftward; an increase in per-unit production costs from using imported resources; the dollar price of imported resources is higher; a decrease in imported resources

Which of the following statements best illustrate a decrease in domestic resource prices and associated shift of the AS curve?

A decrease in the price of steel and electronic components shifts the AS curve rightward; a substantial rise in immigration wages shifting the AS curve rightward; the supply of available land expands shifting the AS curve rightward.

Which of the following statements best summarize the effect of the declining national incomes abroad on US exports and aggregate demand?

Declining national incomes encourages foreigners to purchase fewer U.S goods, net exports fall and US aggregate demand shifts leftward

Input prices are fixed in both the immediate short run and the short run due to

contractual agreements

A decrease in aggregate supply, assuming constant aggregate demand, will result in ___ inflation.

cost-push

An adverse supply shock will shift the aggregate supply curve to the left and result in:

cost-push inflation

An economy in a recession that experiences disruptions in markets for goods used in the production of consumer goods will experience ___.

cost-push inflation

A recessionary gap occurs with ___-___ inflation.

cost; push

A decrease in aggregate demand with constant aggregate supply results in:

cyclical unemployment