Macro quiz ~3~
main factors to change aggrgate demand
expectations fiscal policy and monetary policy the world economy
the SAS will shift because
expected changes in future price level
when unwanted inventories pile up what happens to the price
falls
in the short run the money wage rate is
fixed
output gap
gap between real GDP and potential GDP
quantity of real GDP supplied is the total quantity of
good and services, valued in constant base year dollars, that firms plan to produce during a given period
Draw a new curve that shows the effect of a rise in the money wage rate.
upward shift
long run aggregate supply curve is always
vertical
the aggregate demand curve slopes downward because
wealth and substitution
inflationary gap
potential GDP is less than real GDP
the quantiity of real GDP supplied depends on
quantitiy of real GDP demanded
Economic growth is accompanied by inflation when the ______.
AD curve shifts rightward at a faster rate than the LAS curve shifts rightward
Y=
C+I+G+X-M
monetary policy
FEDs attempt to influence the economy by changing interest rates and the quantity of money
when the money wage rate changes
LAS does not change
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
The business cycle occurs because ______.
aggregate demand and short-run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP
disposable income
aggrgate income minus taxes plus transfer payments
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
potential GDP can increase for 3 reasons
an increase in the full employment quantiity of labor an increase in the quantity of capital an advance in technology
business cycle sequence
below full-employment; full-employment; above full-employment
an increase in potential GDP increases
both long-run aggregate supply and short-run aggregate supply
A ______ macroeconomist believes that the economy is self-regulating and always at full employment.
classical
when the price level rises and other things remain the same the quantity of real GDP demanded
decreases
when the price level rises but other things remain the same real wealth
decreases
what makes money wage rate change
departures from full employment and expectations about inflation
a rise in the money wage rate
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
left alone the economy barely operates at full employment is
incorrect
Aggregate demand increases if expected future income, inflation, or profits ______.
increases
An increase in expected future income _______ aggregate demand
increases
An increase in expected future profits _______ aggregate demand.
increases
An increase in the expected future inflation rate ------- aggregate demand.
increases
An economy is in a long-run equilibrium. An increase in aggregate demand creates ______ gap.
inflationary
A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
keynesian
People spend __________ on U.S.-made items and _______ on foreign-made items.
less/more
arrow along one of the curves that illustrates a rise in the price level when the money wage rate remains unchanged.
long run aggregate supply curve
Other things remaining the same, when the U.S. price level rises, U.S.-made goods and services become ______ expensive relative to foreign-made goods and services
more
A ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change.
new classical
long run macro equilibrium
occurs when real GDP equals potential GDP
long run macroeconomic equilibrium occurs when
occurs when real GDP equals potential GDP, and the LAS, SAS, and AD curves intersect
economic growth is the persistant increase in
potential GDP
in the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
recissionary gap happpens when
potential GDP exceeds real GDP
the long run aggregate supply curve is vertical because
potential GDP is independent of the price level
aggregate demand is the relationship between
quantity of real GDP demanded and the price level
aggregate supply is the relationship between
quantity of real GDP supplied and the price level
full employment
quantity of real GDP supplied is potential GDP
inflationary gap
real GDP exceeds potentail GDP
short run aggregate supply is the relationship between the quantity of
real GDP supplied and the price level when the money wage rate, the prices of other resources and potential GDP remain constant
The quantity of real GDP demanded is the sum of
real consumption expenditure, investment, government expenditure, and exports minus imports.
staglfation is a combo of
recession and inflation
when price level rises and other things remain the same interest rate
rise
when firms are unable to meet the demand for their output prices
rises
Draw a curve that shows the effect on aggregate demand of an increase in expected future income. Label it.
shifts to the right
Draw an arrow along one of the curves that illustrates a rise in the price level accompanied by the same percentage rise in the money wage rate
short term aggregate supply curve
The business cycle is actually a continuous series of different ______.
short-run macroeconomic equilibriums
intertemporal substituion effect
sub across time
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
fiscal policy
the gov attempt to influencee the economy by setting and changing taxes, making transfer payments, and purchasing goods and services
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
a movement along the LAS is accompanied by
the price of goods and services and the prices of factor of production
High inflation accompanies economic growth when ______.
the quantiity of money increases rapidly
an economy is in long run equilibrium A rise in the money wage rate decreases ______ and returns the economy to a full-employment equilibrium.
the quantiity of real GDP demanded
Potential GDP increases for all of the following reasons
the quantity of capital increases technology advances the full-employment quantity of labor increases
When firms are unable to meet the demand for their output, _____.
the quantity of real GDP demanded is greater than the quantity of real GDP supplied
An increase in the price level when the money wage rate remains unchanged increases ______.
the quantity of real GDP supplied
long run aggregate supply is the relationship between
the quantity of real GDP supplied and the price level when the money wage rate changes in step with the price level to maintain full employment
short run macro equilibrium tells us
the quantity of real GDP supplied at each price level
When unwanted inventories pile up, _____.
the quantity of real GDP supplied is greater than the quantity of real GDP demanded
With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
