Econ Midterm #3

The real-balances, interest rate, and foreign purchases effects all help explain:

why the aggregate demand curve is downsloping

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

Not be possible due to the minimum wage law

The fear of unwanted price wars may explain lain why many firms are reluctant to:

Reduce prices when a decline in aggregate demand occurs

Suppose that the economy is midst of a recession. Which policy would most likely end the recession and stimulate output growth ?

Reductions in federal tax rates on personal and corporate income

Graphically, demand-pull inflation is shown as a:

Rightward shift of the AD curve along an upsloping AS curve

Other things equal, an improvement in productivity will:

Shift the aggregate supply curve to the right

The aggregate supply curve:

Shows that the various amounts of real output that businesses will produce at each price level

The immediate short run aggregate supply curve is:

Upsloping

The economy's long-run aggregate supply curve is:

Vertical

The short-run aggregate supply curve represents circumstances where:

Input prices are fixed, but output prices are flexible

Contractionary fiscal policy is so named because it:

Is aimed at reducing aggregate demand and thus achieving price stability

An appropriate fiscal policy for a severe recession is:

A decrease in tax rates

Which of the following would not shift the aggregate supply curve?

An increase in PL

Fiscal policy refers to the:

Manipulation of government spending and taxes to stabilize domestic output, employment, and the price level

Foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

Increase U.S. imports, decrease U.S. exports

In effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

Increase aggregate demand