Smart Book Chapter 32
Calculate per-unit production cost when the real output is 100 units, 10 units of input are needed to produce that quantity, and the price of each input is $20.
$2
Which of the following statements best illustrate a decrease in domestic resource prices and associated shift of the AS curve?
- A decrease in the price of steel and electronic components shifts the AS curve rightward. - The supply of available land expands shifting the AS curve rightward. - A substantial rise in immigration decreases wages shifting the AS curve rightward.
Which of the following choices describe the likely effects of a depreciation of the U.S. dollar on production costs and aggregate supply (AS)?
- A leftward shift of the AS curve - U.S. firms obtaining less foreign currency with each dollar - A decrease in imported resources - An increase in per-unit production costs from using imported resources - A higher dollar price of imported resources
Select all of the following factors which can cause net exports to change.
- Changes in price level - Changes in national income abroad - Changes in exchange rates
Which of the following are determinants of aggregate supply?
- Changes in productivity - Changes in legal-institutional environments - Changes in input prices
The shift of the aggregate supply curve to the left because of adverse supply shocks typically results in which of the following?
- Cost-push inflation - Recession
Which of the following are effects of rising national incomes abroad on US exports?
- Foreigners are encouraged to buy more US products. - US exports rise. - US aggregate demand curve shifts to the right.
What happened to the U.S. economy in the 1990s?
- GDP grew by 4% annually. - Unemployment fell to 4%.
Which of the following are sources of productivity?
- Improved production technology - Better trained workforce - Better educated workforce - Improved forms of business enterprises
Which of the following result from a reduction in personal income tax rates on consumers?
- Increased take-home income - Increasing consumer purchases at each possible price level
Select all the choices that result from the difference in stickiness levels of input and output prices.
- Input and output prices are both fixed in the immediate short run. - Output prices adjust more rapidly than input prices. - The relationship between price level and total output is different in each time horizon.
Which of the following explain the reason for the up-sloping aggregate supply curve in the short run?
- Input costs are fixed, but output costs are variable. - Higher prices mean higher profits when input costs are fixed.
What are the three time horizons that influence how quickly output and input prices can change?
- Long run - Short run - Immediate short run
Select all the choices that explain what happens with dropping price levels.
- People demand more output. - Real balances rise.
Which of the following would be effects on the price of machinery when the cost of machinery components increases?
- Per-unit production prices for machinery would rise. - The aggregate supply curve would shift to the left.
Select all the following choices that are considered to be part of determinants of aggregate supply if they change.
- Prices of imported resources - Government regulations - Business taxes and subsidies
Select all the choices that explain what happens with rising price levels.
- Purchasing power drops. - Real balances drop. - People demand less output.
Select all of the following choices which are reasons that supply-side proponents are in favor of deregulation.
- Reduced per-unit costs and shift of aggregate supply curve to the right - Increased efficiency - Reduced paperwork associated with complex regulations
Select all the following that were characteristic of economic conditions in the United States during the 1990s.
- Strong growth - Full employment - Very low inflation
Which of the following influence expected returns on investment projects?
- Technology - Expectations about future business conditions - Business taxes - Degree of excess capacity
Which statements summarize why the income and substitution effects do not explain the downward sloping aggregate demand curve?
- When the general price level is lower, there is not necessarily an increase in nominal income. - When the general price level falls, the substitution effect on domestically produced goods is not applicable.
The foreign purchases effect occurs when ______.
- a decline in the US price level increases the quantity of US goods demanded as net exports - a rise in the US price level reduces the quantity of US goods demanded as net exports
Calculate per-unit production cost when the real output is 20 units, 10 units of input are needed to produce that quantity, and the price of each input is $2.
1
If total output is 100 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.
10
If real output is 20 units and 10 units of inputs are needed to produce that quantity, then the productivity is ______.
2
Which of the following will shift the aggregate supply (AS) curve for the domestic economy to the left?
A depreciation of the U.S. dollar
Which of the following accurately describes the immediate-short-run aggregate supply curve?
A horizontal line
The dollar has just appreciated. What will be one result?
Aggregate demand will decline.
What is shown by a schedule or curve showing the total quantity of goods and services that would be supplied at various price levels?
Aggregate supply
Immediate short run
Both input and output prices are fixed.
Long run
Both input prices and output prices can vary.
If currently the real GDP is less than equilibrium GDP, what are the adjustments that the economy will go through to achieve equilibrium GDP?
Competition among consumers will increase the price level, encouraging firms to produce more.
What reduces the level of change in input prices in both the immediate short run and the short run?
Contractual agreements
Which of the following statements best describes the effect of declining national incomes abroad on US exports and aggregate demand?
Declining national incomes encourage foreigners to purchase fewer U. S goods, net exports fall and US aggregate demand shifts leftward.
What has been a characteristic of the most recent recessions in the U.S.?
GDP gap but no deflation
Which of the following will increase per-unit costs and reduce short-run aggregate supply?
Higher business taxes
In 2017, which of the following countries had the largest positive GDP gap?
Iceland
Which time horizon has the most fixed input and output prices?
Immediate short run
Between 1996 and 2000, the U.S. economy achieved high GDP levels without inflation. Which factor below explains this?
Increased productivity
Short run
Input prices are fixed, but output prices can vary.
____ spending will fall if firms' outlook on the economy is pessimistic.
Investment
How does price-level flexibility influence the realized multiplier effect?
It weakens the multiplier effect.
Which of the following is a reason that a company's input prices can be inflexible for a period of several years?
Large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract.
What allowed the U.S. economy to expand in the 1990s without experiencing the high inflation associated with other expansions?
New electronic technology
Which of the following was true of Iceland, Germany, Greece, and Chile in 2017?
None of them experienced deflation.
_____ is the measure of the relationship between a nation's level of real output and the amount of resources used to produce that output.
Productivity
What is one result of a decrease in aggregate demand?
Recession
What will a decrease in US net exports do?
Shift the aggregate demand curve leftward
What will a rise in net exports do?
Shift the aggregate demand curve to the right
Which aggregate supply curve is used in order to understand business cycles and macroeconomic policy?
The short-run curve
True or false: Changes in taxes, subsidies, and the extent of regulations may alter per-unit production costs and shift the aggregate supply curve.
True
True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices.
True
True or false: The interest-rate effect that results from a change in price level is different from a change in the real interest rate that results from a change in the nation's money supply.
True
What will be the result if the largest foreign providers of steel increase the prices they charge U.S. buyers?
U.S. aggregate supply will decrease.
A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to ______.
a decline in firms' expected returns
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the quantity demanded for real GDP.
a decrease
Deflation occurs when there is ______.
a decreasing aggregate price level
An increase in productivity is related to ______.
a reduction in per-unit costs
The wealth effect is reflected by ______.
a rightward shift of the aggregate demand curve
A change in one of the determinants of aggregate supply causes ______ the aggregate supply curve.
a shift of
Raising business taxes shift the ______.
aggregate demand curve to the left
If consumers expect inflation in the near future, consumers will want to buy more products now and ______.
aggregate demand will increase
A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called
aggregate demand.
A wage decrease shifts the ______.
aggregate supply curve to the right
A decline in aggregate supply, assuming constant aggregate demand, will result in _______ in the price level.
an increase
Demand-pull inflation, assuming constant aggregate supply, results in ______ in the price level.
an increase
Demand-pull inflation, assuming constant aggregate supply, results in _______ in the quantity demanded for real GDP.
an increase
A decrease in taxes will lead to ______.
an increase in aggregate demand
In terms of aggregate supply and aggregate demand, the equilibrium price level is ______.
at the point of intersection of the aggregate demand and aggregate supply curves
The slope of the short-run aggregate supply curve increases slowly at output levels ____ the full-employment output level.
below
The determinants of aggregate supply are variables that ______.
cause the aggregate supply curve to shift
A decrease in aggregate supply, assuming constant aggregate demand, will result in _______ inflation
cost-push
A recessionary gap occurs with _____-_____ inflation
cost-push
An adverse supply shock will shift the aggregate supply curve to the left and result in ______.
cost-push inflation
An economy in a recession that experiences disruptions in markets for goods used in the production of consumer goods will experience ______.
cost-push inflation
A decrease in aggregate demand with constant aggregate supply results in _____.
cyclical unemployment
According to the foreign purchases effect, an increase in U.S. domestic price levels will ____ (one word) net exports.
decrease
An increase in the interest rate and subsequent decreases in investment and aggregate demand could be the result of a _____ in the money supply.
decrease
"Supply-side" economists argue that increased government regulations on firms will ________.
decrease aggregate supply and increase prices
When interest rates are higher, businesses and consumers will
decrease investment spending and interest-sensitive consumption spending.
When interest rates are higher, businesses and consumers will:
decrease investment spending and interest-sensitive consumption spending.
If the government subsidizes the development of alternative energy it will _______.
decrease the per-unit production costs and shift the aggregate supply curve to the right
A business subsidy will _____ production costs and ______ short run aggregate supply.
decrease, increase
A decline in expected returns will ______ investment and shift the aggregate demand curve to the ______.
decrease, left
A wage decrease will ____ per-unit production costs and shift the aggregate supply curve to the ____.
decrease, right
An increase in real interest rates will ______ investment spending and ______ borrowing costs.
decrease; increase
A higher price level _____ the real value or purchasing power of the public's accumulated savings balances
decreases
Cyclical unemployment and recession often arise from _____ in aggregate demand.
decreases
If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.
decreases; left
A decline in the price level is called ______.
deflation
Aggregate ____ is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.
demand
A decrease in investment spending at each price level will shift the aggregate ______.
demand curve to the left
An increase in aggregate demand, assuming constant aggregate supply, will result in ______ inflation.
demand-pull
Factors that, if they change, shift the aggregate demand curve, are known as ______ of aggregate demand.
determinants
The "other things" that change and shift the aggregate demand curve are called the ____ of aggregate demand or aggregate demand shifters.
determinants
The price of foreign currencies in terms of the US dollar is called the ______.
dollar's exchange rate
The interest rate effect causes the aggregate demand to be ______.
downward sloping
An increase in productivity ____
enables more output with limited resources
Technological advancements will ______ expected returns on investment and ______ aggregate demand.
enhance; increase
New and improved technologies will increase investment spending by ______.
enhancing expected return on investment
In the immediate short run, output prices are typically fixed because firms ______.
enter into supply contracts with their customers
When the price level rises, real GDP demanded will _____.
fall
When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.
fall; rise
True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded
false
When the price level rises, real GDP demanded increases.
false
In the long run of aggregate supply, input and output prices are both ____.
flexible
In the short run, output prices are ____ and input prices are _____.
flexible; inflexible
In the short run, output prices are ______ and ______ prices are ______.
flexible; input; sticky
The dollar's exchange rate is the price of _____.
foreign currencies in terms of the US dollar
When the US price level rises relative to foreign price levels, ______
foreigners buy fewer US goods and Americans buy more foreign goods
The long run aggregate supply curve is vertical at ______.
full employment output
Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at _______.
full strength
Suppose an economy is operating at its full-employment output. An increase in aggregate demand with constant aggregate supply will result in actual GDP being _____ than potential GDP.
greater
If output prices are fixed regardless of quantity sold, the immediate-short-run aggregate supply curve will be a ___line.
horizontal
A rise in consumer wealth will ______ consumer spending.
increase
Aggregate demand will rise if consumers expect prices to _____ in the future.
increase
An increase in consumer wealth prompts consumers to decrease savings and ____ spending.
increase
Investment spending and aggregate demand will ____ when excess capacity dwindles.
increase
New and improved technology, seen as investment spending by firms will lead to a(n) ____ in aggregate demand
increase
The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to ___
increase
When price levels fall, 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
A decrease in the money supply is likely to cause a(n) ______ in interest rates, and subsequent ______ in investments and aggregate demand.
increase, decreases
A higher business tax will ______ per-unit costs and ______ short-run aggregate supply.
increase; decrease
An appreciation of the US real exchange rate will ______ imports and ______ exports while depreciation of the US exchange rate will ______ imports and ______ exports
increase; decrease; decrease; increase
A wage increase will ______ per-unit production costs and shift the aggregate supply curve to the ______.
increase; left
The foreign purchases effect occurs when the US price level ____ relative to foreign price levels and the quantity of US goods demanded as net exports decreases.
increases
When price levels fall, the quantity of real GDP demanded will ____
increases
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
A decrease in the price of an imported resource ______ US aggregate supply, while an increase in the price of an imported resource ______ US aggregate supply.
increases, decreases
If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.
increases; right
Wages and salaries for workers in a union are usually ______ because wages are set by a collectively bargained agreement that typically prohibits wage cuts until its expiration.
inflexible downward
What is a major factor in per-unit production costs and therefore a key determinant of aggregate supply?
input prices
The relationship between the price level and total output is different in each of the three time horizons because ______.
input prices are stickier than output prices
In the immediate short run, labor contracts that cover several months or years cause ______.
input prices to be sticky or slow to change
One of the reasons that the short run aggregate supply curve is upsloping is because ___ prices are fixed while ____ prices are variable
input, output
When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.
interest-rate
The equilibrium price level and equilibrium output is determined by the ______.
intersection of the aggregate demand curve and the aggregate supply curve
The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______
inverse
The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______.
inverse
The downward sloping aggregate demand curve indicates that there is a(n) _____ relationship between the price level and real GDP
inverse
The downward sloping aggregate demand curve indicates that there is a(n) ____ relationship between the price level and real GDP
inverse,
Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.
investment spending
The short-run aggregate supply curve ______.
is flatter at outputs below full-employment
A decline in investment spending at each price level will shift the aggregate demand curve to the ____
left
A tax increase will reduce consumption and shift the aggregate demand (AD) curve to the ___
left
An increase in business taxes will shift the aggregate demand curve to the _____
left
If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the ____
left
If consumers increase their saving rate in order to pay off their debts the aggregate demand (AD) curve will shift to the ___
left
The aggregate demand curve will shift to the ____ when there is a reduction in government purchases.
left
The aggregate demand curve will shift to the _____ when US net exports decline
left
Wage increases shift the aggregate supply curve to the ____
left
An increase in real interest rates will ______ investment spending and ______ aggregate demand
lower; reduce
The second stage of changes in aggregate demand is a ______.
multiplier effect that produces a larger change in aggregate demand
If price level is excluded, net exports can change due to changes in ______ and changes in ______ rates.
national income abroad; exchange
In the immediate short run, ______ fixed due to the firms commitment to customers to supply whatever quantity is demanded at listed price.
output prices are
The short-run is the period in which ______.
output prices are flexible but input prices are fixed or highly inflexible
All recent recessions in the United States have produced a decrease in ______ but not a decrease in ______.
output; prices
The determinants of aggregate supply affect profits by changing ______ at each price level.
per-unit production costs
Aggregate supply is represented as a schedule or curve showing the relationship between a nation's ____ level (index) and the amount of real domestic output that firms in the economy produce.
price
The immediate short run, short run, and long run are the three time horizons that influence the relationship between ______.
price level and real GDP
The determinants of aggregate supply raise or lower per-unit ____ costs at each price level.
production
Improved production technology and a better educated workforce are two main sources of increased _____
productivity
Total output divided by total inputs is the formula for ___
productivity
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
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
If you liquidate all of your assets and use the money to buy products, the real output you can purchase at current prices makes up your ______.
real balances
Productivity is the measure of the relationship between a nation's level of ______.
real output and the amount of resources used to produce that output
The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.
real-balances effect
A decrease in aggregate demand with constant aggregate supply can result in ______.
recession
A higher price level _____ the real value or purchasing power of the public's accumulated savings balances.
reduces
In the immediate short run for aggregate supply, both input and output prices ____.
remain fixed
An input price is a(n) ______ price while an output price makes up the price level.
resource
A tax cut will shift the aggregate demand (AD) curve to the ____
right
An increase in exports relative to imports will shift the aggregate demand (AD) curve to the ___
right
If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the ____
right
The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the ___
right
Changes in consumer spending, investment, government spending and net export spending will:
shift the aggregate demand curve
A decline in investment spending at each price level will ______.
shift the aggregate demand curve to the left
A decrease in borrowing by consumers for consumption spending will ______.
shift the aggregate demand curve to the left
An increase in government spending is likely to _____.
shift the aggregate demand curve to the right
An increase in investment spending at each price level will ______.
shift the aggregate demand curve to the right
Changes that increase per-unit production costs will ______.
shift the aggregate supply curve to the left
Deregulation that results in accounting manipulations, monopolization, and business failures is likely to ______.
shift the aggregate supply curve to the left
Changes that reduce per-unit production costs will ______.
shift the aggregate supply curve to the right
For any initial increase in aggregate demand, the resulting multiplier effect will become ______ as the ______ in price level becomes greater.
smaller; increase
Other things being equal, according to the aggregate demand curve, a decrease in the price level will increase the amount of aggregate _____.
spending
In the short run, labor contracts that cover several months or years cause wages to be _____ for the duration of the contract.
sticky
A leftward shift in the aggregate _____ curve leads to cost-push inflation.
supply
The two changes of the legal-institutional environment that will shift the aggregate supply curve are ______.
taxes and government regulations
The aggregate demand curve would shift to the left if ______.
taxes increased
The intersection of the aggregate demand and aggregate supply curves determines ______.
the equilibrium price level and equilibrium real GDP
Assuming constant price levels, an initial drop in aggregate demand (AD) results in ______ being at full strength.
the multiplier
For any increase in aggregate demand, the resulting increase in real output will become smaller as the increase in ______ becomes greater.
the price level
Businesses will invest less if:
they are pessimistic about future business conditions
Productivity can be illustrated in the formula ______.
total output divided by total inputs
True or false: Emphasis is given to short-run aggregate supply because this is the version of aggregate supply that can explain changes in output and prices. True false question.
true
The short-run aggregate supply curve is more useful than the curves for other time horizons because real-world economies ______.
typically change price levels and output levels simultaneously
At full-employment output level, the long-run aggregate supply curve is ______.
vertical
Unlike consumption spending, investment spending is ______.
volatile and independent of changes in total income
The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer ___
wealth
Select the two stages of changes in aggregate demand
- A change in a determinant that causes an initial change in the amount of real GDP demanded. - A multiplier effect that magnifies a change in spending to produce a larger ultimate change in aggregate demand.
Which of the following are determinants of aggregate demand?
- Change in consumer wealth - Change in investment spending
Which of the following are the four components or determinants of aggregate demand?
- Consumer spending - Government spending - Investment spending - Net export spending
An increase in the price level results in which of the following effects?
- Decrease in investments - Decrease in the level of consumption
Which of the following explain the reasons for the downward slope of the aggregate demand curve?
A higher price level decreases the purchasing power of the publics' accumulated savings balances.
How is the real-balances effect defined?
A higher price level reduces the purchasing power of the public's accumulated savings balances.
Investment spending refers to purchases of which of the following?
Capital goods
The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.
False
The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply. True false question.
False
Investment spending depends on the real ____ rate and the expected return from _____ (Enter only one word per blank.)
Interest; investment
What is the least stable component of aggregate demand?
Investment
Which of the following enhance the expected returns on investment and thus increase aggregate demand?
New and improved technology
Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?
The level of consumption increases, investment increases, and net exports increase.
Why does the substitution effect fail to explain the downward slope of the aggregate demand curve?
The substitution effect does not work when prices fall together in groups.
Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher. True false question.
True
True or false: A change in the price level will change the amount of aggregate demand and the amount of real GDP demanded.
True
Investment spending refers to ______
adding to physical capital
When firms realize that their excess capacity is shrinking, investment spending ______.
and aggregate demand (AD) will increase
Consumer wealth is defined as the total value of ______.
assets minus the total value of liabilities
At any amount of nominal balances, a person's real balances will be ______ if the price level drops and ______ if the price level rises.
higher; lower
A higher than expected return on investment will _____ the demand for capital goods.
increase
A change in interest rate may result from a change in the money supply, while the "interest-rate effect" results from a change in ______.
price level
A reduction in personal income tax will _______.
raise take-home income and increase consumer purchases
An unexpected increase in asset values that results in an increase in consumer spending is called the ____ effect.
wealth
An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.
wealth
