macro chapter 15

Aggregate demand shifts right when the Federal Reserve

increases the money supply.

Which part of real GDP fluctuates most over the course of the business cycle?

investment expenditures

In the long run, an increase in the stock of human capital

makes the price level fall, while increases in the money supply make prices rise.

Which of the following shifts aggregate demand right?

the implementation of an investment tax credit but not a decrease in the price level

The long-run aggregate supply curve shifts left if

there is a natural disaster.

At a given price level, an increase in which of the following shifts aggregate demand to the right?

All of the above are correct

The long-run aggregate supply curve shifts right if

All of the above are correct.

Most economists believe that in the long run, changes in the money supply

affect nominal but not real variables. This view that money is ultimately neutral is consistent with classical theory.

Wages tend to be sticky

because of contracts, social norms, and notions of fairness.

An increase in household saving causes consumption to

fall and aggregate demand to decrease.

During a recession the economy experiences

falling employment and income

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

monetary neutrality would mean the prices should have risen, but production should not have changed.

The aggregate-demand curve shows the

quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

When we say that economic fluctuations are "irregular and unpredictable," we mean that

recessions do not occur at regular intervals.

Tax cuts shift aggregate demand

right as do increases in government spending.

When production costs rise,

the short-run aggregate supply curve shifts to the left.

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

. a decrease in the price level but does not change real GDP.

Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

. aggregate demand left.

In the mid-1970s the price of oil rose dramatically. This

. shifted aggregate supply left, the price level rose, and real GDP fell.

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

aggregate demand right.

Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. Which curve shifts and in which direction?

aggregate demand shifts right

Which of the following shifts both the short-run and long-run aggregate supply right?

an increase in the capital stock

Financial CrisisSuppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time.

c. both the price level and real GDP fall

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to

decrease consumption, shown by shifting the aggregate-demand curve to the left.

Aggregate demand shifts right when the government

decreases taxes

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

the long-run aggregate-supply curve to the right.

Which of the following shifts long-run aggregate supply left?

​a decrease in either natural resources or the human capital stock.