MACRO

According to the foreign purchases effect, if prices in the United States rise and prices in other countries remain stable without a corresponding adjustment in exchange rates, U.S. consumers will buy ___1___ foreign goods and services and imports will ___2___. Foreigners will buy fewer goods and services produced in the United States and exports will ____3____. The quantity of net exports will ____4____ reducing the quantity of real GDP demanded.

1- more 2- rise 3- fall 4- fall *also will result in a downward sloping aggregate demand curve

Which of the following events can shift the aggregate supply curve and the aggregate demand curve, moving the economy away from its full-employment level of real GDP?

1- natural disasters 2- government policies

Aggregate demand illustrates a(n) _________ relationship between the price level and the quantity of real GDP or output demanded.

1- negative

The fact that _____1______ wages are sticky _____2_____-ward means the government has a stronger incentive to intervene in the economy in a(n) ______3_____.

1- nominal 2- down 3- recession

Aggregate demand illustrates a negative relationship between the ____1____ level and the quantity of real ___2___ or output demanded. (Use one word for each blank.)

1- price 2- GDP

Supply shocks cause a _____1____ the aggregate supply curve. A change in the price level would cause ____2____ the aggregate supply curve.

1- shift of 2- movement along

Suppose that an increase in personal income taxes causes aggregate demand to decrease so that the economy moves to a new _____1_____-run equilibrium. In this __________2_________ phase of the business cycle, real GDP declines. The economy will reach a trough, or the lowest point in the business cycle. Over time, as nominal wages and costs of other resources fall, the economy begins to recover. Aggregate supply shifts to the _________3______ so that output expands and the price level falls further. Eventually, the economy moves to a new _____4_____-run equilibrium at a lower price level and full-employment output.

1- short 2- recession 3- right 4- long

The relationship between the price level and the amount of real GDP supplied in the economy is called:

1- short run aggregate supply 2- aggregate supply

Stagflation is a combination of the words ____1____ and ____2___ .

1- stagnant 2- inflation

Assume an economy starts out in equilibrium. When the price level rises: (Place the impacts listed below in the proper order.)

1- the purchasing power of assets such as saving stocks and bonds decreases. 2- firms and consumers can purchase fewer goods and services. 3- the aggregate expenditures schedule downward.

Assume an economy starts out in equilibrium. When the price level falls: (Place the impacts listed below in the proper order.)

1- the purchasing power of assets such as saving stocks and bonds increases. 2- firms and consumers can purchase more goods and services. 3- the aggregate expenditure in the economy increases.

Which of the following explain why the Aggregate Demand (AD) curve slopes downward?

1- the real balances effect 2- the foreign purchases effect 3- the interest rate effect

In in the aggregate demand and supply model, the the price level is on the ______1________ axis of the graph and real GDP is on the ______2______ axis.

1- vertical 2- horizontal

What might lead to an expansion in the business cycle?

An increase in SRAS

Which of the following are correct?

-The Phillips Curve is downward-sloping. -The Phillips Curve shows the relationship between unemployment and inflation.

We use ____1___ to talk about the price and quantity of a single good or service produced in a specific market. We use ____2___ to describe the overall, or total, demand for all final goods and services produced in an economy.

1 - demand 2 - aggregate demand

Short-run equilibrium occurs where ___1___ and ____2_ intersect.

1- SRAS 2- AD

The equilibrium price level and real GDP are determined by the intersection of the _____1_____ demand and _____2______-run ______3_____ supply curves.

1- aggregate 2- short 3- aggregate

Which of the following will increase the aggregate demand curve?

1- an increase in consumption spending 2- an increase in investment

When the dollar ______1_________, (appreciates/depreciates) foreign goods and services become cheaper to U.S. consumers and ______2_______ (imports/exports) rise. (Fill in the blank: choose form the wording provided.)

1- appreciates 2- imports

When there is a negative demand shock, real GDP lies ________1______ the full-employment level and unemployment is _______2______ than the natural rate.

1- below 2- higher

If ______1______ -push inflation is occurring, it is because the aggregate ______2_________ curve is shifting to the _____3______ resulting in lower output and higher prices.

1- cost 2- supply 3- left

If consumers ____1____ the amount of goods and services they purchase, given constant prices, then aggregate _____2_____ for real GDP decreases.

1- decrease 2- demand

If consumers ____1____ the amount of goods and services they purchase, given constant prices, then aggregate ____2____ SHIFTS TO THE LEFT since _____3_____ goods and services are being purchased at every price level.

1- decrease 2- demand 3- fewer

In deriving the aggregate demand curve from the aggregate expenditures model, a(n) ___1____ in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is ___2____ before the price level change.

1- decrease 2- higher than

In the short run, the price level decreases. Firms hire fewer workers and ____1_____ production. The quantity of real GDP decreases. As the demand for labor decreases and labor contracts expire, workers will accept lower wages. In the _____2____ run, output falls.

1- decrease 2- long

Increasing government purchases or decreasing taxes does have a downside in the form of a higher budget ________1_______ , but it can also lessen the severity of ______2______.

1- deficit 2- recession

If _____1_____ -pull inflation is occurring, it is because the aggregate ____2_____ curve is shifting to the ____3_____ resulting in higher output and higher prices.

1- demand 2- demand 3- right

Holding the price level constant, a decrease in net exports causes aggregate _______1______ to shift to the _______2______.

1- demand 2- left

When the dollar _______1_______ (appreciates/depreciates), foreign goods and services become more expensive to U.S. consumers and _______2_____ (imports/exports) fall. (Fill in the blank: choose from the wording provided.)

1- depreciates 2- imports

Consider nominal or money wages for example. Wages tend to be stickier moving _____1_______-ward than _____2_____-ward.

1- down 2- up

Some of the challenges of using government expenditures to stimulate the economy are that:

1- eventually spending will need to be cut, leading to recession. 2- increasing government expenditures can increase the deficit.

The aggregate demand and supply model can be used to explain the business cycle. An initial increase in aggregate demand will cause the economy to __1__. Then over time as input prices __2___, the aggregate supply curve shifts to the left the economy is enters the contraction phase of the business cycle.

1- expand 2- increase

According to the real-balances effect, when the price level rises, the real value of savings ____1____ and people are less willing to buy goods and services so consumption falls and the quantity of real GDP demanded ___2____ , resulting in a(n) ____3_____-ward sloping aggregate demand curve.

1- falls 2- falls 3- down

When there is a positive supply shock, real GDP rises above the _____1______-employment level and unemployment is lower than the _______2______ rate.

1- full 2- natural

Stagflation is used to describe an economy that is not growing, but has rising ______1_______ together with high _________2_____.

1- inflation 2- unemployment

The long-run aggregate supply curve is a vertical line originating at the full-employment level of real GDP. Remember it's vertical because all ________1_______ prices are flexible in the _____2_______ run.

1- input 2- long

If consumers decrease the amount of goods and services they purchase, given constant prices, then aggregate demand shifts to the ____1____ since ____2____ goods and services are being purchased at every price level.

1- left 2- fewer

In the long run, the equilibrium price level is determined by the intersection of the ______1___-run aggregate supply curve and the aggregate _____2______ curve.

1- long 2- demand

In the _____1_______ run, the level of real GDP is determined by the long-run aggregate ______2_______ curve.

1- long 2- supply

GDP=

C+I+G+NX

Changes in government purchases and net exports directly affect the aggregate demand for real _______.

GDP

Suppose there is an economy-wide decrease in business taxes. What can we expect to see in the business cycle model?

The business cycle enters an expansion.

Price level increasing, causing a movement along the aggregate demand curve, can be explained by:

a decrease in net exports

_____ demand includes the demand for goods and services as diverse as food clothing cars health care entertainment and housing.

aggregate

_________ demand can be interpreted as the overall demand for real GDP from four different sources.

aggregate

____________ demand includes the demand for goods and services as diverse as food clothing cars health care entertainment and housing.

aggregate

A schedule or curve that shows the relationship between the quantity of real GDP demanded and the price level is called:

aggregate demand

Once a recession has occurred, as nominal wages and the costs of other resources fall eventually:

the aggregate supply curve shifts to the right the price level falls and real GDP returns to the full employment level.

The Phillips Curve refers to:

the downward-sloping line that represents the negative or inverse relationship between the rate of inflation and the unemployment rate in the short run.

_______ is found at the intersection of the aggregate expenditures schedule and the equilibrium line.

the equilibrium level of real GDP

The determination of the the long-run equilibrium occurs where the AD and SRAS curves intersect the:

the long-run aggregate supply curve.

The determination of the the long-run equilibrium price level and real GDP is found by using:

the long-run aggregate supply curve.

The inflation rate refers to:

the percentage increase in the overall price of goods and services in the economy from one time period to another.

The pressure on prices and nominal wages that results when an economy produces beyond its full-employment level of output is called:

an inflationary gap.

Question: According to the interest rate effect, when the price level rises, people need:

answer: more money to make the same number of purchases causing interest rates to rise reducing consumption investment and the quantity of real GDP demanded resulting in a downward sloping aggregate demand curve.

Along the short-run aggregate supply curve

as price level increases the level of real GDP supplied also increases.

A(n) _______ in investment will shift the AE line downward and shift the AD curve to the left.

decline

In the short run, a shift of the aggregate supply curve to the left indicates ____________ production at every price level.

decreased

Holding the price level constant, a decrease in net exports _____________ the aggregate demand for real GDP.

decreases

A decrease in consumer confidence causes aggregate _______ to fall.

demand

Changes in government purchases and net exports directly affect the aggregate __________ for real GDP.

demand

Inflation that results from an increase in aggregate demand is called:

demand-pull inflation,

Aggregate expenditures:

determine the level of real GDP

Aggregate demand is _______ sloping (one word).

downward

Aggregate demand is:

downward sloping

Government _______________ refer to all payments made by the government whether as transfer payments or as payments for final goods and services.

expenditures

The equilibrium level of real GDP is found at the intersection of the aggregate ________ schedule and the equilibrium line.

expenditures

Saving is important for long-run growth: When households save that money is available for:

firms to borrow for investment; that borrowing leads to more capital and higher production in the future.

Payments made by the government for final goods and services and transfer payments are called:

government expenditures

Payments made by the government for ONLY FINAL GOODS AND SERVICES are called:

government purchases.

When an economy produces beyond potential real GDP, it can lead to:

inflation

Suppose the full-employment level of real GDP is $12 trillion and the economy is actually producing $13 trillion. In this case, the economy is in a(n) ________ gap.

inflationary

____________ prices, like wages, tend to be sticky and take time to adjust to a change in the economy.

input

Full-employment real GDP is often used to describe:

long-run aggregate supply.

The supply curve for an individual good or service is upward-sloping because:

marginal costs are increasing

If consumption gross investment or net exports are increasing because of the lower price level, there will be a:

movement along the AD curve

If consumption, gross investment, or net exports are increasing because of a LOWER PRICE LEVEL, there has been a:

movement along the AD curve

If firms are producing more output because of the higher price level, there will be a:

movement along the AS curve.

As _____ wages and the costs of other resources rise during an expansion, aggregate supply shifts to the left.

nominal

The short-run equilibrium level of real GDP is:

not necessarily the full-employment level of output that is consistent with the long run.

A movement along the aggregate supply curve is due to a change in the ____________ level.

price

Aggregate demand relates the _____ level to real GDP (one word).

price

The equilibrium ______ level is determined by the intersection of the short-run aggregate supply curve and the aggregate demand curve.

price

In the aggregate demand and supply model, the:

price level is on the vertical axis of the graph and real GDP is on the horizontal axis.

Improved ______________ means that we can produce more output with fewer inputs.

productivity

The income effect for an individual good is similar to the:

real balances effect for the aggregate demand

A decrease in aggregate demand may lead to a(n):

recession

As nominal wages and the costs of other resources fall during a recession, aggregate supply shifts to the _________.

right

If consumers increase the amount of spending aggregate demand shifts to the _________.

right

If consumers increase the amount of spending, aggregate demand shifts to the _____________

right

If the government increases the amount of spending, aggregate demand shifts to the _______.

right

In the short run, a shift of the aggregate supply curve to the ____________ indicates increasing production at every price level.

right

If resource costs _____________ , output decreases at every price level.

rise

When foreign incomes ____________, aggregate demand shifts to the right.

rise

According to the real-balances effect, when the price level rises the real value of ________ falls and people are less willing or able to buy goods and services.

savings

If consumption, gross investment ,or net exports are increasing because of some NON-PRICE CHANGE, there will be a:

shift of the AD curve

A decline in investment will:

shift the AE line downward and shift the AD curve to the left

A decline in investment will:

shift the AE line downward and shift the AD curve to the left.

Assume that an economy is initially in equilibrium. If the level of investment falls, the aggregate demand curve will:

shift to the left

Increased government spending spurs a short-run expansion. Over time, aggregate supply eventually __________, returning the economy to the full-employment level of output. In this new long-run equilibrium, the distribution of _________ in the economy changes.

shifts to the left; output and resources

The term _______ was coined in the 1970s during a period of high unemployment in the United States.

stagflation

In the short run, input prices are __________ and do not adjust along with other prices in the economy.

sticky

Aggregate ______________ illustrates how the total amount of goods and services produced in an economy relates to the price level.

supply

Generally changes to social institutions that inhibit production decrease aggregate:

supply

In the classical model of aggregate demand and aggregate supply, it is aggregate __________ that adjusts in the long run to return the economy to its long run equilibrium.

supply

In the short run, the aggregate _____________ curve slopes upward.

supply

The determination of the the long-run equilibrium price level and real GDP is found by using the long-run aggregate ________ curve.

supply

Suppose that the the price of oil falls worldwide. This will cause aggregate:

supply to increase shifting to the right.

Suppose that the the price of oil falls worldwide. This will cause aggregate:

supply to increase, shifting to the right.

Indicate the likely effect of a wide-reaching increase in wages paid to workers on the AD-AS model.

Aggregate supply decreases

Increased government spending spurs a short-run expansion. Over time, aggregate supply eventually shifts to the left, returning the economy to the full-employment level of output. In this new long-run equilibrium, the distribution of output and resources in the economy changes. This really happened in practice during:

World War II in the United States.

If the amount of output firms are willing to produce at each possible price level increases, that's:

a shift of the aggregate supply.

A decrease in aggregate demand:

causes a movement down along the Phillips Curve.

An increase in aggregate demand:

causes a movement up along the Phillips Curve.

A shift in the Aggregate Demand (AD) curve is due to:

changes in the determinants of aggregate demand

If consumers __________ the amount of spending, aggregate demand shifts to the left.

decrease

When the price level increases in the short run, output will expand because profit margins ______________.

increase

Cost-push inflation occurs as an increase in resource costs shifts aggregate supply to the:

left

Higher resource costs will shift the aggregate supply curve to the __________.

left

If consumers decrease the amount of spending, aggregate demand shifts to the ________.

left

Government policies, natural disasters, and a variety of other events can shift the aggregate supply and demand curves moving the economy away from its _____________-run full-employment level of real GDP.

long

In the long run, the equilibrium price level is determined by the intersection of the:

long-run aggregate supply curve and the aggregate demand curve.

The long-run equilibrium occurs where:

the AD and AS and LRAS curves intersect.

The short-run equilibrium occurs where:

the AD and AS curves intersect.

The aggregate demand and supply model can be used:

to describe changes in an economy's price level and real GDP in the short and the long run.

In the short run, the aggregate supply curve slopes ____________.

upward

The aggregate supply curve slopes ____________ in the short run because input prices are sticky and take time to adjust.

upward

The long-run aggregate supply curve is a(n) _______ line originating at the full-employment level of real GDP.

vertical

One of the challenges of using government expenditures to stimulate the economy is that:

when spending needs to be cut it can cause a recession.