Econ Exam III

other things the same, when the government spends more, the initial effect is that

aggregate demand shifts left

in the context of the aggregate-demand curve, the interest-rate effects refers to the idea that, when the price level increases

households increases their holdings of money; in turn, interest rates increase, which reduces spending on investment goods

other things the same, if the price level rises, people

increase domestic bond purchases, so the dollar appreiates

according to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

increased, so it would increase production

in the context of aggregate demand and aggregate supply, the wealth effects refers to the idea that, when the price level decreases, the real wealth of households

increases and as a result consumption spending increases. this effect contributes to the downward slope of the aggregate-demand curve

when taxes decrease consumption

increases as shown by a shift of the aggregate demand curve to the right

which of the following shifts aggregate demand to the left? A. the price level rises B. Interest rates fall C. the dollar depreciates for some reason other than a change in the price level D. a decrease in the price level

increases in the profitability of capital due perhaps to technological progress

the misperceptions theory of the short-run aggregate supply curve says that of the price level is higher than people expected, then some firms believe that the relative price of what they produce has

increases so they increase production

aggregate demand shifts right when the Federal Reserve

increases the money supply

when the money supply increases

interest rates fall and so aggregate demand shifts right

the position of the long-run aggregate supply curve

is determined by resource usage and technology

other things the same, an increase in the price level makes consumers feel

less wealthy, so the quantity of goods and services demanded falls

stick nominal wages can result in

lower profits for firms when the price level is lower than expected

the sticky-price theory of the short-run aggregate supply curve says that when the price level is higher that expected, some firms will have

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied

the sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected

production is more profitable and employment rises

which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases

the dollar appreciates relative to other currencies

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds

the dollar would depreciate which would cause aggregate demand to shift left

which of the following is correct

the long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables

the aggregate supply curve is

vertical in the long run and slopes upward in the short run

which of the following effects helps to explain the slope of the aggregate-demand curve A. the exchange-rate effect B. the wealth effect C. the interest-rate effect D. All of the above are correct

D. All of the above are correct

which of the following is correct 1. shhort run fluctuations in economic activity happen only in developing countries 2. during economic contractions most firms experience rising profits 3. recessions come at irregular intervals and are easy to predict 4. when real GPD falls, the rate of unemployment generally rises

4. when real GDP falls, the rate of unemployment generally rises

which of the following shifts aggregate demand to the right? A. the federal Reserve buys bonds B. a decrease in net exports due to something other than a change in domestic prices C. The repeal of an investment tax credit

A. the federal reserve buys bonds

at the end of WWII many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in

Both the United States and Europe

other things the same, which of the following is correct A. a decrease in the price level causes the dollar to appreciate. Aggregate demand shifts right B. A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts right C. if Speculators lose confidence in the American economy, the dollar appreciates. Aggregate demand shifts right D. If speculators lose confidence in the american economy, the dollar depreciates. Aggregate demand shifts right

D. if speculators lose confidence in the american economy, the dollar depreciates. Aggregate demand shifts right

which of the following shifts aggregate demand to the left A. the price level rises B. interest rates fall C. the dollar depreciates for some reason other than a change in the price level D. stock prices fall for some reason other than a change in the price level

D. stock prices fall for some reason other than a change in the price level

which of the following are not included in the aggregate demand for goods and services A. purchases of stock and bonds B. purchases of services such as visits to the doctor C. purchases of capital goods such as equipment in the factory D. purchases by foreigners of consumer goods produced in the United States

Purchases of stock and bonds

which of the following would cause investment spending to decrease and aggregate demand to shift left?

a decrease in the money supply and the repeal of an investment tax credit

which of the following would help explain why the aggregate demand curve slopes downward

a lower price level reduces the interest rate, which encourages greater spending on investment goods

the initial impact of an increase in an investment tax credit is to shift

aggregate demand right

suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. their reaction would initially shift

aggregate demand left

other things the same, as the price level rises, real exchange rates

and interest rates rise

wages tend to be sticky

because of contracts, social norms, and notions of fairness

changes in the price level affect which components of aggregate demand

consumption, investment, and net exports

aggregate demand shifts right when the government

decreases taxes

part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

decreases the interest rate

other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then

employment and production rise

an increase in household saving causes consumption to

fall and aggregate demand to decrease

when the price level falls

firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes

in the aggregate demand and aggregate supply model, stick wages, sticky prices, and misperceptions about relative prices

have temporary effects

classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise in the meantime the economy enjoyed higher employment and production. this is inconsistent with monetary neutrality because

monetary neutrality would mean the prices should have risen, but productino should not have changed

other things the same, an increase in the price level induces people to hold

more money, so they lend less, and the interest rate rises

the effect of an increase in the price level on the aggregate-demand curve is represented by a

movement to the left along a given aggregate-demand curve

which of the following can explain the upward slope of the short-run aggregate supply curve

nominal wages are slow to adjust to changing economic conditions

the aggregate demand and aggregate supply graph has

quantity of output on the horizontal axis. output can be measured by the real GDP

assuming that a is positive, theories of short-run aggregate supply are expressed mathematically as

quantity of output supplied = natural rate of output + a(actual price level - expected price level)

which of the following is most commonly used to monitor short-run changes in economic activity

real GDP

most economists believe that in the short run

real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend

the aggregate quantity of goods and services demanded changes as the price level rises because

real qealth falls, interest rates rise, and the dollar appreciates

A relatively mild period of falling incomes and rising unemployment is called

recession

when we say that economic fluctuations are "irregular and unpredictable." we mean that

recessions do not occur at regular intervals

if banks and speculators in the U.S. decided to exchange U.S dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. net exports would

rise and aggregate demand would shift right

other things the same, if the price level rises, then domestic interest rates

rise, so domestic residents will want to hold rewer foreign bonds

if the price level falls, the real value of a dollar

rises, so people will want to buy more. this response helps explain the slope of the aggregate demand curve

as the price level rises, the interest rate

rises, so the supply of dollars in the market for foreign currency exchange decreases

the aggregate demand is described graphically as

sloping donward

menu costs help explain

stick-price theory

aggregate demand shifts if at a given price level

taxes fall and shifts if the money supply increases

the model of short-run economic fluctuations focuses on

the price level and real GPD

Which of the following adjust to bring aggregate supply and demand into balance

the price level and real output

the aggregate demand and aggregate supply graph has

the price level on the vertical axis. the price level can be measured by the GPD deflator

aggregate demand includes

the quantity of goods and services the government, households, firms, and costumers abroad want to buy

real and nominal variables are highly intertwined, and changes in the money supply change real GPD. Most economists would agree that this statement accurately describes

the short run, but not the long run

other things the same, if the U.S. price level rises, then

the supply of dollars in the market for foreign-currency exchange decreases, so the real exchange rate rises

when the Fed buys bonds

the supply of money increases and so aggregate demand shifts right