Econ Final Exam

aggregate demand decreases if the exchange rate ______ or foreign income ______

increases; decreases

The multiplier is greater than 1 because the change in autonomous expenditure leads to _________

more induced expenditure

If inflation is expected, _________

neither a cost-push inflation nor a demand-pull inflation occur

To calculate the multiplier, we divide _____ by ______

the change in equilibrium expenditure; the change in autonomous expenditure

The marginal propensity to import is equal to _____

the change in imports divided by the change in real GDP, other things remaining the same

An increase in investment shifts the AE curve ______ and the AD curve __________-

upward; rightward

everything else remaining the same, an increase in aggregate demand increases ______

the quantity of real GDP supplied

If an economy is at full employment equilibrium and a decrease in consumption expenditure occurs, the new short run equilibrium is ____ and ____ gap emerges

a below full-employment equilibrium; a recessionary

If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced ________

a demand-pull rise in the price level

Deflation is _______

a persistently falling price level

The best forecast available, which is based on all the relevant information is called ______

a rational expectation

You observe that unplanned inventories are increasing. You predict that there will be __________

a recession

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

Deflation occurs when ____________

aggregate demand increases at a persistently slower rate than aggregate supply

equilibrium expenditure is the level of aggregate expenditure that occurs when ___________

aggregate planned expenditure equals real GDP

Aggregate planned expenditure is the sum of planned ______

consumption expenditure, investment, government expenditure, and exports minus imports

examples of fiscal policy that increase aggregate demand include _________

an increase in government expenditure, a decrease in taxes, and an increase in transfer payments

For every dollar increase in _____ expenditure, the multiplier determines the increase in real GDP

autonomous

The multiplier is the amount by which the change in ____ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP.

autonomous

The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______

autonomous; the change in equilibrium expenditure and real GDP

Firms_____ production, and real GDP ________

decrease; decreases

The consequences of deflation are _______

employers hire fewer workers, a decrease in real GDP and employment, redistribution of income and wealth

Interest rate parity means ______

equal rates of return

An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate _____ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to _____

falls below; rise

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

The multiplier increases when the marginal propensity to consume ____

increases

consumption expenditure minus imports, which varies with real GDP, is called _______________

induced expenditure

If aggregate planned expenditure exceeds real GDP, then ________

inventories decrease, and as real GDP increases a movement up along the AE curve occurs

If aggregate planned expenditure is less than real GDP, then ______________

inventories increase, and as real GDP decreases a movement down along the AE curve occurs

Stagflation _____

is a combination of recession and inflation

A flexible exchange rate is one that ______

is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank

A fixed exchange rate is one that _______

is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market

A ____ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment

keynesian

For a given increase in aggregate demand, the steeper the slope of the short run aggregate supply curve, the _______ is the increase in the price level and the _______ is the multiplier effect on real GDP in the short run

larger; smaller

A fall in the price level ______

shifts the AE curve upward and brings a movement down along the AD curve

The quantity of US dollars demanded in the foreign exchange market depends on many factors, the main ones being_______

the exchange rate, world demand for US exports, interest rates in the US and other countries, and the expected future exchange rate

Along the short-run Phillips curve, ____________

the expected inflation rate and the natural unemployment rate are constant

The US interest rate differential rises if ______, and the larger the US interest Rate differential, the ______ is the demand for US dollars in the foreign exchange market.

the foreign interest rate falls; greater

The marginal propensity to save is _____

the fraction of a change in disposable income that is saved

The marginal propensity to consume is _____

the fraction of a change in disposable income that is spent on consumption

Along the long-run Phillips curve, __________

the unemployment rate is constant at the natural unemployment rate

Disposable income is aggregate income minus taxes plus _____

transfer payments

Planned saving + planned consumption expenditure = ______

disposable income

Firms ______ production, and real GDP ________

increase; increases

The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______

Change C+ Change YD; Change S + Change YD

What influences consumption decisions and shifts the consumption function?

The real interest rate, wealth, and expected future income

An increase in potential GDP increases _____

both long run aggregate supply and short-run aggregate supply

inflation expectations "become self-fulfilling" because consumers decide to _____, which ______

buy more goods and services at today's lower prices; increases aggregate demand

An increase in investment shifts the AE curve upward by an amount equal to the _______, and shifts the AD curve rightward by an amount equal to the _________

change in investment; change in investment times the multiplier

A _____ macroeconomist believes that the economy is self-regulating and always at full-employment

classical

The components of aggregate expenditure that are influenced by real GDP are _____

consumption expenditure and imports

changes in consumption spending play a large role in the business cycle because ____ accounts for approximately _____ percent of GDP

consumption expenditure; 70

If real GDP and aggregate expenditure are less than equilibrium expenditure, firms' inventories ______

decrease

The multiplier increases when the marginal propensity to import ____ or the income tax rate _____

decreases; decreases

aggregate demand decreases if expected future income, inflation, or profits _____. And aggregate demand decreases if fiscal policy ____ government expenditure.

decreases; decreases

Aggregate demand decreases if monetary policy _____ the quantity of money and ____ interest rates

decreases; increases

The consumption function is the relationship between consumption expenditure and _____, other things remaining the same.

disposable income

The relationship between saving and ____, other things remaining the same, is called the saving function

disposable income

a crawling peg exchange rate policy is one that ______

follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market

The market in which the currency of one country is exchanged for the currency of another country is the _______. The price at which one currency exchanges for another currency is the ______.

foreign exchange market; exchange rate

If GDP and aggregate expenditure are greater than equilibrium expenditure, firms' inventories ________

increase

The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______

increase real GDP by a given amount

As we move up along the long run aggregate supply curve, _____

the real wage rate remains constant

Aggregate demand decreases if fiscal policy ____ taxes or _____ transfer payments

increases; decreases

The exports effect is the result that the lower the exchange rate, other things remaining the same, the ________

lower are the prices of US produced goods and services to foreigners and the greater is the volume of US exports

The imports effect is the result that the higher the exchange rate, other things remaining the same, the ________

lower are the prices of foreign produced goods and services to Americans and the greater the volume of US imports

A decrease in the marginal propensity to import ___________, everything else remaining the same

makes the multiplier larger

An increase in income taxes ______, everything else remaining the same.

makes the multiplier smaller

An economy is at potential GDP when it experiences an increase in costs. The economy experiences __________

stagflation

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 movements along _____. The quantity of real GDP supplied _____.

the SAS curve; increases

The marginal propensity to import is equal to ___________

the change in imports divided by the change in real GDP, other things remaining the same

If the natural unemployment rate increases and the expected inflation rate remains constant, then _____________

the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward

An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals ________

the marginal propensity to consume x the increase in real GDP

When real GDP increases, the change in imports equals ______

the marginal propensity to import x the increase in real GDP

A cost-push rise in the price level can arise from an increase in _______

the money wage rate or money prices of raw materials

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 stagflation can turn into a cost-push inflation process when _______

the quantity of money persistently increases

A stagflation can turn into a cost-push inflation process when ________

the quantity of money persistently increases

An increase in the price level when the money wage rate remains unchanged increases _____________________

the quantity of real GDP supplied

When unwanted inventories pile up, ___________. Prices ___________.

the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall

If the expected inflation rate increases and the natural rate of unemployment remains constant, then ________

the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift

A movement ________ along the short-run Phillips curve occurs when there is an ________ increase in aggregate demand

up; unexpected