Mac Final -- GH ch. 12

A shift to the right of the short-run aggregate supply curve may be caused by:

an increase in productivity.

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

an increase; an increase

If the economy is in a recessionary gap, actual output will be _____ potential output.

below

A change in _____ would cause a shift in the short-run aggregate supply curve

commodity prices

When the price level decreases, firms in perfectly competitive markets will:

decrease output.

If the price level rises by 10%, the purchasing power of $10,000 will:

decrease to $9,000

An improvement in the business outlook of firms is a type of positive _____ shock and therefore shifts the _____ curve to the _____.

demand; aggregate demand; right

The aggregate demand curve slopes:

downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.

A major reason for the end of the Great Depression was an increase in government spending

during World War II.

Aggregate demand will shift to the RIGHT if:

government purchases increase.

A positive demand shock leads to

higher prices and higher employment.

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

higher; higher output, since most production costs are fixed in the short run.

The long run in macroeconomic analysis is a period:

in which prices and nominal wages are flexible.

According to the interest rate effect, an increase in the price level causes people to _____ their money holdings, which _____ interest rates and _____ investment spending.:

increase; increases; decreases

According to the wealth effect, when prices decrease, the purchasing power of assets _____ and consumer spending _____.

increases; increases

Stagflation is a combination of _____ unemployment and _____ inflation.

increasing; increasing

Potential output:

is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.

The short-run aggregate supply curve will shift to the:

left if nominal wages increase.

(Figure: Policy Alternatives) Look at the figure Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:

lower wages will result in a gradual shift from SRAS1 to SRAS2.

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:

output supplied.

An economic policy maker would rank a _____ shock as the MOST preferred type.

positive supply

The short-run aggregate supply curve may shift to the right if:

productivity increases.

If all prices, including the nominal wage rate, double in the long run, then aggregate output supplied will:

remain unchanged.

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____.

rise; remain stable

In the long run, the economy is:

self-correcting, as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment.

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:

shift to the left.

Suppose that political instability in the Middle East interrupts the supply of oil. The _____ curve shifts _____, output _____, and prices _____.

short-run aggregate supply; left; decreases; increase

If nominal wages fall, then the short-run aggregate _____ curve shifts to the _____.

supply; right

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and investment spending increases:

AD1 will shift to the right, reflecting a multiplied increase in real GDP at every price level.

(Figure: An Increase in Aggregate Demand) Look at the figure An Increase in Aggregate Demand. Because of the pressures at the short-run equilibrium at Y2 and P2:

the SRAS curve will shift to the left.

_____ would likely shift the short-run aggregate supply curve to the left.

An increase in the price of oil

Suppose that an economy is in an inflationary gap in the short run. In the long run:

the economy's self-correcting mechanism will restore GDP to its potential level.

The short-run aggregate supply curve illustrates:

the positive relationship between the aggregate price level and aggregate output supplied

Changes in _____ CANNOT shift the aggregate demand curve

the price level

In 2008 the Federal Reserve worried about

the threat of stagflation, and it had a difficult time stabilizing the economy, as stabilization policies are not very effective in managing negative supply shocks.

Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:

vertical.

The short-run aggregate supply curve is positively sloped because:

wages are sticky.

Which of the following is TRUE with respect to short-run and long-run aggregate supply?

Which of the following is TRUE with respect to short-run and long-run aggregate supply?

The correct formula for the output gap is:

[(Actual Aggregate Output - Potential Output) / Potentail Output ] x 100

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases:

a downward movement along the AD1 will take place, reflecting a decrease in the price level.

In general, a change in the price level, all other things unchanged, causes:

a movement along the aggregate demand curve.

Policy can offset the effects of all of the following shocks EXCEPT:

a negative supply shock by increasing money supply.