LC27: LearningCurve - Ch. 27: Aggregate Demand and Aggregate Supply

The _____ effect refers to the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets.

wealth

In Neverlandia, the average price of a house has doubled because of a large increase in the demand for houses and a large decrease in the supply. Which is MOST likely to occur?

the aggregate demand curve will shift to the right

The aggregate supply curve shows the relationship between the aggregate price level and _____ in the economy.

the aggregate output supplied

Assuming everything else remains constant, a change in the aggregate price level in an economy will cause:

the aggregate planned expenditure line to shift and movement along the aggregate demand curve.

The aggregate supply curve shows the relationship between _____ and the quantity of aggregate output supplied in the economy.

the aggregate price level

If potential output is $10 trillion and actual output is $9 trillion, then there is a _____ gap

recessionary

Unemployment will be _____ if actual output is less than potential output.

relatively high

An increase in employers' contributions to workers' health insurance:

represents an increase in nominal wage.

If there is an inflationary gap, then stabilization policy should:

shift the aggregate demand curve to the left.

If oil prices rise, then the short-run aggregate supply curve will:

shift to the left.

If the economy experiences a negative supply shock, then the short-run aggregate supply curve will:

shift to the left.

If the price of oil decreases, then the:

short-run aggregate supply curve will shift to the right.

Which MOST likely will increase unemployment in the short run?

stagflation

In the figure, if the economy is in long-run equilibrium at point C, a negative demand shock would result in equilibrium at point:

B.

If a consumer has $3,000 in the bank and the aggregate price level increases 20%, can he or she afford something that previously cost $2,700?

No, because the new cost of that item will be more than $3,000.

If potential output is $10 trillion and actual output is $9 trillion, then there is an output gap of:

-10 %.

If there is a 15% increase in the aggregate price level, a consumer who had been looking to purchase something that cost $2500 would now have to pay $______ for it.

2,875

A producer wants to determine if it should produce more units of output. It currently sells each unit for $30 and the production per unit is $25, giving them a profit of $_____ .

5

In the United States, the money supply is determined by the:

Federal Reserve.

_____ is the level of real gross domestic product (GDP) the economy would produce if all prices were fully flexible.

Potential output

_____ is the difference between the price per unit and the cost per unit.

Profit per unit

Why would law makers want to prevent the temporary fall in aggregate output that happens without policy intervention?

This decline is associated with high unemployment.

Suppose an economy is initially in long-run equilibrium and then there is an increase in people's wealth in this economy. What policy is the government most likely to use to keep an inflationary gap from opening up?

a monetary policy like increasing interest rates

In the short run, an increase in the aggregate price level caused by a shift in the aggregate demand curve first causes:

a movement along the short-run aggregate supply curve.

A shift to the right of the long-run aggregate supply curve is also known as:

long-run growth.

The _____ curve shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, government, and the rest of the world.

aggregate demand

The aggregate demand curve shows the relationship between the aggregate price level and the quantity of _____ demanded by households, businesses, government, and the rest of the world.

aggregate output

The aggregate demand curve shows the relationship between the _____ and the quantity of aggregate output demanded by households, businesses, government, and the rest of the world.

aggregate price level

Between 1929 and 1933, the _____ in the United States was moving down.

aggregate supply curve

Which action would MOST likely eliminate a recessionary gap?

an increase in government spending

The aggregate demand curve is downward sloping because:

as the price level decreases, consumers have more purchasing power.

Changes to the aggregate price level alter the level of planned aggregate spending:

at any given level of real GDP.

A fall in aggregate demand will result in:

low aggregate output and falling prices.

Aggregate output and aggregate prices will _____ in the short run as a result of a negative demand shock.

both decrease

Macroland is initially in long-run equilibrium and then it faces a positive supply shock. In response, the central bank of Macroland increases the money supply. In the short run, this policy action MOST likely will:

continue to worsen the inflation that has already begun.

The aggregate demand curve will shift to the right when:

household wealth increases.

The _____ effect occurs when an increase in the aggregate price level reduces the purchasing power of households' and firm's money holdings, leading to an increase in interest rates and falling consumption and investment.

interest rate

The nation of Pile is initially in long-run equilibrium and then it faces a negative demand shock. In response, the central bank increases the money supply. In the short run, this policy action MOST likely will:

lead to a reduction in unemployment and an increase in aggregate production.

If the economy is allowed to self-correct after an inflationary gap, this is depicted as a:

leftward shift in the short-run aggregate supply curve.

When the Federal Reserve changes the money supply or interest rates to change aggregate demand, it is using _____ policy.

monetary

If the price level falls and consumer demand changes, this means:

movement along the aggregate demand curve.

The Great Depression was caused by a _____ shock.

negative demand

An event that shifts the aggregate demand curve to the right is a _____ shock.

positive demand

The increase in government spending during World War II produced a _____ shock, which ended the Great Depression.

positive demand

The U.S. economy experienced a _____ shock in the late 1990s when the internet and information technology increased productivity.

positive supply

Suppose that the short-run aggregate supply curve equals aggregate demand, and that the gross domestic product (GDP) that occurs at this point is also potential GDP. One can MOST likely assume that:

the economy is in long-run equilibrium.

In the United States, _____ is determined by the Federal Reserve.

the money supply

Suppose there is an increase in the price of a commodity. In the short run:

the producer's profit per unit of output will decrease.

An increase in physical and human capital can shift the long-run aggregate supply curve:

to the right.

Assuming everything else remains constant, suppose the aggregate price level in the economy decreases; this will produce the wealth effect:

which will increase in purchasing power and result in a downward movement along the aggregate demand curve.