Economics Chapter 13 Unit 4.2 Practice Test
decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers
A rise in the money wage rate when the economy is at potential GDP _______.
increase; increases
Aggregate demand increases if expected future income, inflation, or profits _______. And aggregate demand increases if fiscal policy _______ government expenditure.
decreases, increases
Aggregate demand increases if fiscal policy _______ taxes or _______ transfer payments.
increases; decreases
Aggregate demand increases if monetary policy _______ the quantity of money and _______ interest rates.
decreases; increases
Aggregate demand increases if the exchange rate _______ or foreign income _______.
real GDP; price level
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same.
the money wage rate falls
Aggregate supply increases when ______.
real GDP; price level
Aggregate supply is the relationship between the quantity of _____ supplied and the _____ when all other influences on production plans remain the same.
The money wage rate falls, aggregate supply increases, and the price level falls.
An economy has a recessionary gap. With no change in aggregate demand, how does the economy return to full employment?
consumption expenditure, which increases current aggregate demand
An increase in expected future income increases ______.
aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise
If the economy is at full employment and the Fed increases the quantity of money, ______.
decreases, and the aggregate demand curve shifts leftward
If the government of Mexico raises income taxes, Mexico's aggregate demand _______.
demanded; real GDP supplied
Macroeconomic equilibrium occurs when the quantity of real GDP ______ equals the quantity of ______.
decreases because it exports to the United States decrease. Mexico's AD curve shifts leftward
Mexico trades with the United States. When the United States experiences negative economic growth, Mexico's aggregate demand _______.
rising price level and demand-pull inflation
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a ______.
decreases; decreases / increase; an increase in exports increases aggregate demand and a decrease in imports increases aggregate demand
The decrease in nonresidential investment ______ aggregate demand. The decrease in federal government spending ______ aggregate demand. / The change in exports and imports _______ aggregate demand because _______.
the price level falls
The quantity of real GDP demanded increases if ______.
The potential GDP line is vertical because potential GDP is independent of the price level.
What does the potential GDP line illustrate?
Mexico's exports to Europe decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts
When Europe trades with Mexico and goes into a recession, _______.
increases and its AD curve shifts rightward
When Mexico increases the quantity of money, Mexico's aggregate demand _______.
aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment
When investment increases, _______.
aggregate supply increases
When potential GDP increases, ______.
decreases. The AD curve shifts leftward.
When the Mexican government relaxes its environmental standards, so that factories are no longer required to upgrade their production facilities, investment in Mexico decreases and Mexico's aggregate demand _______.
remains the same
When the price level and the money wage rate rise by the same percentage, unemployment _______.
the quantity of real GDP demanded in Mexico decreases
When the price level in Mexico rises, _______.
decreases; increases
When the price level rises but the money wage rate remains unchanged, unemployment _______ and the quantity of real GDP supplied _______.
a decrease in the quantity of money and an increase in interest rates
Which of the following are examples of monetary policy that decrease aggregate demand?
An increase in government expenditure, a decrease in taxes, and an increase in transfer payments.
Which of the following items are examples of fiscal policy that increase aggregate demand?