Final Macro Review

forward exchange rate

The agreed-upon exchange rate to be used in a forward trade.

aggregate supply curve

The graph that shows the relationship between the aggregate quantity of output supplied by all the firms in an economy and the overall price level is

exchange rate

The measure of how much one currency is worth in relation to another.

marginal propensity to import

The proportion of additional income that is spent on imports of goods and services

All of the following shift the short-run aggregate supply curve except

a change in the price level.

Which of the following shifts the short − run aggregate supply curve?

a change in the price of oil

Phillips Curve

a curve that shows the short-run trade-off between inflation and unemployment the higher inflation is, the lower unemployment is etc.

An aggregate demand shift from AD2 to AD1 can be caused by

a decrease in taxes

If the AS curve shifts from year to year, but the AD curve does not, then the Phillips curve would show

a positive relationship between the inflation and unemployment rates.

An increase in government purchases shifts the ________ curve to the ________.

aggregate demand; right

Which of the following will, unambiguously, increase the price level?

an increase in government spending and an increase in costs

Which of the following causes a movement along the aggregate demand curve?

an increase in prices

If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ________ change in the price level and a ________ change in output.

big; small

Fiscal policy affects the goods market through

changes in taxes and government spending

Suppose the equilibrium output is initially $600 billion. An oil embargo would probably

decrease the equilibrium output and increase the price level.

If the AD curve shifts from year to year and the AS curve does not, then the short run Phillips curve would be

downward sloping

As the interest rate decreases, the planned aggregate expenditure curve shifts downward.

false

The aggregate demand curve is the sum of all demand curves of all goods and services in the economy.

false

The real wealth effect explains why the aggregate supply curve is horizontal in the long run.

false

The level of aggregate output demanded rises when the price level falls, because the resulting decrease in the interest rate will lead to

higher investments spending and higher consumption spending

An increase in the supply of oil would probably

increase the equilibrium output and decrease the price level.

If aggregate demand increases while aggregate supply is stable, aggregate output will ________ and the unemployment rate will ________.

increase; decrease

The Phillips curve depicts the relationship between

inflation and unemployment

The aggregate demand curve

is a downward-sloping curve.

When the interest rate is high, planned investment is ________ so output is ________.

low; low

The level of aggregate output demanded falls when the price level rises, because the resulting increase in the interest rate will lead to

lower investment spending and lower consumption spending.

When the aggregate supply curve is horizontal,

many firms are likely to have excess capacity.

If the long − run aggregate supply curve is vertical, the ________ a change in net taxes on aggregate output in the long run is zero.

multiplier effect

balance of payments accounts

national accounts that track both payments to and receipts from foreigners

The aggregate demand curve would shift to the left if

net taxes were increased.

If a decrease in net taxes in the United States resulted in a very large increase in aggregate output and a very small increase in the price level, then the U.S. economy must have been

on the very flat part of the short-run aggregate supply curve.

Which of the following sequence of events follows an open market purchase by the Fed?

r down I up AE up Y up

long-run aggregate supply curve

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible The long-run aggregate supply curve is perfectly vertical, which reflects economists' belief that the changes in aggregate demand only cause a temporary change in an economy's total output

Suppose the equilibrium output is initially $600 billion. A decrease in wages and an increase in government spending will, for sure, increase

the equilibrium output

spot exchange rate

the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day

Aggregate demand increases if

the government increases spending

The quantity of aggregate output demanded will fall if

the price level increases.

Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause

the short-run aggregate supply curve to shift to the left.

A decrease in the price level raises the real value of wealth.

true

If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical.

true

When the economy is producing at full capacity, the aggregate supply curve becomes

vertical

The long-run aggregate supply curve is vertical, if

wages and other costs fully adjust to changes in prices in the long-run.