Economics - Ch. 8

Which of the following will shift the aggregate supply in a manner that produces unemployment? - Consumer pessimism - Declining infrastructure - Higher taxes - Technological advances - Resources shortages

- Declining infrastructure - Higher taxes - Resources shortages

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

A higher price level decreases the purchasing power of the public's accumulated savings balances.

The long-run aggregate supply curve is vertical because:

in the long run the economy will produce at natural rate of output regardless of the price level

According to Keynes, _____ aggregate demand would cause persistently _____ unemployment.

inadequate; high

When the price level falls, the quantity of real GDP demanded will ______ (decrease/increase).

increase

When the price level falls, the quantity of real GDP demanded will _______.

increase

Regulations imposed on firms by the government ______.

increase per-unit production costs and shift the aggregate supply curve to the left

An increase in the price of oil due to a conflict will ______ per-unit production costs and shift the aggregate supply curve to the ______.

increase, left

World War II ____ (increased/decreased) the demand for goods and services, causing GDP to increase and ending the Great Depression.

increased

Along the short-run aggregate supply curve (SRAS), output increases when the price level ______ (increases/decreases)

increases

The foreign trade effect occurs when the U.S. price level ______ (increases/decreases) relative to foreign price levels and the quantity of U.S. goods demanded as net exports decreases.

increases

Which of the following effects does not help explain why the aggregate demand curve is downward sloping?

inflation effect

The policy of nonintervention by the government in the market mechanism is referred to as:

laissez faire

_______-_______ follows the doctrine of "leave it alone," of nonintervention by government in the market mechanism.

laissez faire

The U.S. economy in the 2008-2009 period experienced a _____ shift in aggregate demand.

leftward

If the aggregate quantity supplied is less than the aggregate quantity demanded, the current price level is _______ the equilibrium price level.

less than

If the price level is lower than the equilibrium price level, then aggregate quantity supplied is _______ aggregate quantity demanded.

less than

The combination of prices and real output that is compatible with both aggregate demand and aggregate supply is called the _____ equilibrium.

macro

The idea that small disturbances in output, prices, or unemployment were likely to be magnified, not muted, by the invisible hand of the marketplace is describing _______.

market instability

The idea that limited or costly credit could cause the economy to produce below capacity is associated with _____ theories of short-run instability.

monetary

A demand-side theory that emphasizes the role of money in financing aggregate demand is known as:

monetary theory

The intensity and duration of the decline in GDP during the Great Depression was ______ the more recent U.S. recessions.

more severe than

Recessions are periods when:

output is falling

Economic performance (as measured by real GDP) is at its maximum during a _______ and at a minimum during a _______.

peak; trough

The historical growth path of the U.S. economy can be characterized as:

periods of expansion followed by contraction

If the long-run AS curve is vertical, then shifts in AD will only affect the level of _____ in the long run.

prices

Because higher output prices increase _____, firms want to produce more goods and services.

profits

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 phase of the business cycle that shows a decline in total output is called a(n) _______.

recession

If the long-run AS curve is vertical, then a rightward shift in AD will, in the long run, cause the level of prices to ______.

rise

Given aggregate demand, if the aggregate supply curve shifts to the left, the price level will _______ and output will _______.

rise, fall

The lowest point on the business cycle that immediately precedes an expansion is called a(n) ______.

trough

That the equilibrium price or output level may not satisfy our macroeconomic goals is the problem of _______.

undesirability

In the short run, the aggregate supply curve likely slopes _______.

upward

In the long run the aggregate supply curve will be:

vertical

Suppose you have $1000 in savings and the current price level is 100. Suppose inflation pushes the price level up by 10 percent, what is the real value of your savings?

$909.09

Suppose you have $1,000 in savings and the current price level is 100. Suppose deflation pushes the price level down by 10 percent. What is the real value of your savings?

$1,111.11

Three strategy options for macro policy to cope with a recession include: - Shift the aggregate demand curve to the right - Laissez faire - Shift the aggregate demand curve to the left - Shift the aggregate supply curve to the right - Shift the aggregate supply curve to the left

- Shift the aggregate demand curve to the right - Laissez faire - Shift the aggregate supply curve to the right

Which of the following are true of Say's Law? - The economy is inherently unstable. - Supply creates its own demand. - Whatever is produced is sold.

- Supply creates its own demand. - Whatever is produced is sold.

Which of the following are identified as policy levers? - Wars or terrorist attacks - Tax policy - Government spending - Changes in the supply of money - Regulations

- Tax policy - Government spending - Changes in the supply of money - Regulations

Keynes argued that a deficiency in spending might result from which of the following? - consumer savings - easy money policy - insufficient government spending - inadequate investment

- consumer savings - insufficient government spending - inadequate investment

Which two of the following are reasons for the upward sloping aggregate supply curve in the short run? - cost effect - productivity effect - profit effect - output effect

- cost effect - profit effect

Which of the following effects help explain why the aggregate demand curve is downward sloping?

- interest rate effect - real balances effect - foreign trade effect

Identify the 5 basic macroeconomic outcomes.

- output - jobs - prices - growth - international balances

Which of the following are basic macroeconomic outcomes?

- prices - growth - jobs - output - international balances

During World War II, ______. - the U.S. economy was in an expansion - unemployment increased - GDP fell - GDP grew - employment increased

- the U.S. economy was in an expansion - GDP grew - employment increased

Select all that apply Two main debates between the Classical economists and Keynesian economists were related to: - the economy's self-adjustment - government intervention - the existence of business cycles - measurement of unemployment

- the economy's self-adjustment - government intervention

The two potential problems with macro equilibrium are ______. - undesirability - inflation - instability - disequilibrium

- undesirability - instability

During the 2008-2009 recession, the unemployment rate peaked at ______ percent.

10

According to what theory does the economy "self-adjust"?

Classical theory

True or false: The growth path of the U.S. economy can be characterized as a smooth, rising trend.

False, it is a series of steps, stumbles, and setbacks.

Inherent market instability is most closely connected to which economic theory?

Keynesian

The policy strategy for coping with recession that relies on markets self-adjusting is referred to as

Laissez faire

Which of the following are demand-side theories?

Monetarist and Keynesian

The concept that "supply creates its own demand" is known as ______ ______.

Say's Law

True or false: Business cycles are likely to result from recurrent shifts of the aggregate supply and demand curves.

True

True or false: Keynesian theory is considered a demand-side theory.

True

True or false: The Classical Theorists believed that the economy self-adjusts.

True

True or false: The Great Depression impacted many countries around the world.

True

An increased difficulty or outright inability of borrowers to obtain loans is referred to as

a credit crisis

The interest rate effect creates a downward-sloping aggregate demand curve because ______.

a higher price level increases money demand, which increases interest rates and decreases the amount of real GDP

The real balances effect can be defined as the mechanism by which ______.

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

A schedule or curve that shows the total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus is called ______.

aggregate demand

The macro equilibrium occurs where:

aggregate demand equals aggregate supply

The idea that some costs of production rise when output is increased helps explain why the

aggregate supply curve is upward sloping.

Business cycles are ______.

alternating periods of economic growth and contraction

A business cycle is ______.

an alternation between economic upturns and downturns

The downward-sloping aggregate demand curve indicates ______ relationship between the price level and real GDP.

an inverse

The aggregate demand curve slopes downward because it reflects:

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

Aggregate _______ is a schedule or curve that shows the total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus.

demand

According to John Maynard Keynes, in the long run we are all _______.

dead

As a result of the foreign trade effect, an increase in domestic price levels will ______ (increase/decrease) net exports

decrease

A higher price level ______ (increases/decreases) the real value or purchasing power of the public's accumulated savings balances

decreases

In the short run, the economy's firms will reduce total production if the price level

decreases

The real balances effect causes the aggregate demand curve to slope _______.

downward

Some explanations of macroeconomic instability are said to be eclectic because they

draw from both sides of the market

Theories of instability that draw from both sides (demand AND supply) of the market are referred to as _____ explanations.

eclectic

Wars and natural disasters are ______ (internal/external) shocks.

external

When the price level rises, the value of real GDP demanded will _____.

fall

Given aggregate supply, if the aggregate demand curve shifts to the left, prices will _______ and output will _______.

fall; fall

In the short run, output prices are ____ and input prices are _____.

flexible; inflexible

If current production equals the economy's capacity production, then the economy has achieved

full-employment GDP

The total market value of final goods and services that could be produced in a given time period at full employment is called ________.

full-employment GDP

A main debate between the Classical economists and Keynesian economists was related to:

government intervention

If the price level is higher than the equilibrium price level, then aggregate quantity supplied is _______ aggregate quantity demanded.

greater than

When the economy grows at 2 percent or less, this is called a ______.

growth recession

Match the term with its definition.

growth recession - a period when the economy expands too slowly (0-2 percent) recession -a period of decline in total real GDP for two or more consecutive quarters depression - an extremely deep and long recession

If the quantity of real GDP demanded is falling, then it must be the case that the price level is _____.

rising

Business cycles are likely to result from recurrent _____ of the aggregate supply and demand curves.

shift

If the long-run AS curve is vertical and we observe a long-run decline in the price level, then it must be the case that AD has

shifted leftward

Business cycles are likely to result from recurrent _______ of the aggregate supply and demand curves.

shifts

If the price level rises in the short run, negotiated wages and rent will ____, and firms' output will therefore _____.

stay constant; increase

Aggregate _______ can be represented as a schedule or curve showing the relationship between the price level and the amount of real output that is produced in a given time period. (Enter one word for the blank.)

supply

Aggregate _______ reflects the various quantities of real output that firms are willing and able to produce at alternative price levels in a given period.

supply