Econ Test 2 part 2

is vertical; is vertical

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

Keynesian Phillips curve tradeoff.

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

an increase; domestic investment

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

a major trading partner's economic slowdown

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

coordination

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

rational expectations

After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall?

The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods.

Aggregate demand curves slope downwards for each of the following reasons EXCEPT

shift substantially

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

a and c

Aggregate demand refers to the

relatively flat; relatively steep

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

SRAS curve rightward

An increase in labor productivity shifts the

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

Referring to the diagram above, which of the following is a true statement?

all components of aggregate demand.

Consumption, investment, government spending, exports, and imports are:

short-term

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

The economy cannot sustain production above its potential GDP in the long run.

From a neoclassical view, which of the following is a true statement?

fighting unemployment

From a neoclassical view, which of the following is less important?

excess supply

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

inflationary increase in price level

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

Aggregate demand does not affect the quantity of output.

If aggregate supply is vertical, then which of the following statements must be true?

encouraging long-term growth

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

SRAS rises.

If wage rates fall at the same time that labor productivity increases, what is the effect on short-run aggregate supply (SRAS)?

recessionary gap

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

menu costs

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

breakdown of key market institutions

In order to shift the vertical supply curve to the left, which of the following would have to occur?

potential GDP and aggregate supply

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

vertical AS curve

In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

productivity increases

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands.

SRAS curve to the right, causing equilibrium price level to fall and equilibrium Real GDP to increase.

In the short run, a decrease in wage rates, ceteris paribus, shifts the

deflation

Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save?

the unemployment rate

Potential GDP in the U.S. will be unaffected by ____________________.

D

Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If unusually bad weather leads to decreased production of wheat, corn, and other crops, at which point is the economy most likely to end up?

rises; falls

Refer to Exhibit 8-2. Based on the given change, what word (rises or falls) should go in blank (5) and blank (6), respectively, to summarize the resulting impact on short run equilibrium?

economic growth is low or even negative.

Refer to the graph shown below. At point B:

Phillips Curve.

Refer to the graph shown below. This graph illustrates a

at least a slight increase in unemployment.

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

Real GDP rises, the unemployment rate falls, and the effect on the price level cannot be determined

Starting from short-run equilibrium, the following occurs: personal income taxes are cut, business taxes are cut, and labor productivity rises. What is the effect on the price level, Real GDP, and the unemployment rate in the short run?

increases; rightward

Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

147.48

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

depreciated; less

Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar. The dollar has __________________, making American goods __________ expensive for Mexicans.

appreciated; less

Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar. The dollar has _________________, making Japanese goods __________ expensive for Americans.

wages are sticky.

The Keynesian view of economics assumes that:

neoclassical

The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment.

750

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

labor demand shifts to the left, if wages are flexible.

The equilibrium quantity of labor and the equilibrium wage level decrease when:

labor demand shifts to the right, if wages are flexible.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

economic growth; the size of the economy

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

zero

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

374

What does consumption equal when income equals 600?

aggregate demand

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

tangible and/or intangible capital.

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

creating increases in aggregate demand to reduce unemployment

Which of the following represents a Keynesian point of view of macroeconomics?

An increase in wage rates causes producers to move up the SRAS curve.

Which of the following statements is false?

a change in the price level

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve

bigger leakages

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

Neoclassical; long

________________ economists place an emphasis on __________ run economic performance.

Changes in output prices

____________________ will not cause a shift of the AS curve in a Keynesian framework.