Economics 202 Ch. 9

If the marginal propensity to consume is 0.6, then the spending multiplier is:

2.5

In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts in these two curves, what is a likely outcome?

Inflation

__(Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____.

SRAS1; P1

Which of the following best illustrates the wealth effect?

The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

The Potbelly Pothole Company is undertaking some investment in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen?

The company's demand for investment will rise.

A(n) _______ in productivity and a(n) ______ in taxes will shift short-run aggregate supply to the right.

increase; decrease

Suppose consumers spend more than usual. In the short run, prices will ____; in the long run, prices will _____ from their starting point.

increase; increase

Suppose consumers spend more than usual. In the short run, output will ____; in the long run, output will _____ from its starting point.

increase; remain unchanged

Assume initially the economy is at full employment. If aggregate demand increases, the aggregate price level and costs will ______, and ultimately, the short run aggregate supply curve shifts to the _______.

rise; left

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:

increased inflation.

Which of the following will shift the aggregate supply curve to the right?

increased investment in human capital

A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded.

increases; increases

If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will:

shift to the right.

Which of the following events causes a decrease in aggregate demand?

taxes increase

__(Figure: Determining SRAS Shifts) Which statement is NOT correct?

An increase in aggregate demand would lead to deflation.

Demand-inflation scenarios took place in the:

1960s for the United States and from 1985 to 1995 for Japan.

________ inflation occurs when a supply shock reduces aggregate supply.

Cost-Push

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the:

Keynesian model assumes that prices are constant.

Which of the following will NOT shift the aggregate supply curve to the right?

an increase in the minimum wage

Which of the following events will shift the aggregate demand curve to the right?

decreased taxes

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

downward; the price level

Which of the following events causes an increase in aggregate demand?

falling interest rates

Economic growth is shown as a:

shift to the right in the long-run aggregate supply curve.

Aggregate supply increases when:

there is a decrease in firms' market power.

Aggregate supply shifts to the left when:

input prices rise.

In the short run, the aggregate supply curve is ____ because input prices are _____.

positively sloped; not completely flexible

Other things equal, when the U.S. aggregate price level falls, U.S. exports _______ and U.S. imports ________.

rise; fall

A breakthrough in solar energy research that halves the cost of electricity will:

shift the aggregate supply curve to the right.

Starting in long-run equilibrium when the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0, if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a short-run equilibrium at point _____.

a leftward shift in SRAS2; a

In the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________.

fixed; flexible

Which of the following partly explains why the aggregate demand curve is negatively sloped?

When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.

Which of the following would NOT cause a shift in the aggregate demand curve?

a change in the price level

What would cause inflation to rise and employment to increase?

a shift of the AD curve to the right