Macro Midterm part 3

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Autoworkers agree to a lower money wage rate. This event​ _______.

increases the quantity of real GDP demanded

Give some examples of monetary policy that decrease aggregate demand. Examples of monetary policy that decrease aggregate demand include​ ______.

A decrease in the quantity of money and an increase in interest rates

Does economic growth result from increases in aggregate​ demand, short-run aggregate​ supply, or​ long-run aggregate​ supply? Economic growth results from​ ______.

A growing supply of labor and increasing labor productivity, which increase long-run aggregate supply

Describe three types of​ short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP is less than potential GDP is​ _____ equilibrium. And one in which real GDP equals potential GDP is​ _____ equilibrium.

A below full-employment; a full-employment Picture

If the money wage rate rises and potential GDP remains the​ same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS​ curve? A rise in the money wage rate with no change in potential GDP creates​ ______.

A leftward shift of the SAS curve and no change in the LAS curve

The following events have occurred at times in the history of the United​ States: 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Explain the effect of each of the following events on aggregate supply and aggregate demand in the United States. Event 1 Event 2 Event 3

Decrease aggregate demand Decreases short-run aggregate supply Decreases aggregate demand

Draw the​ long-run aggregate supply curve when potential GDP is ​$18.5 trillion. Label it. As we move up along the​ long-run aggregate supply​ curve, ______.

Picture

If the price level and the money wage rate rise by the same​ percentage, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

Does not change; long-run

The U.S. price level rises. This event​ ______.

Increases the quantity of real GDP supplied

Explain for each event whether it changes the quantity of real GDP​ supplied, short-run aggregate​ supply, long-run aggregate​ supply, or a combination of them. Automotive firms in the United States switch to a new technology that raises productivity. This event​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

Increases; increases

If the price level rises and the money wage rate remains​ constant, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

Increases; shot-run

Mexico trades with the United States. Explain the effect of each of the following events on the quantity of real GDP demanded and aggregate demand in Mexico. When the U.S. economy goes into an expansion​, ​______.

Mexico's price level rises and quantity of real GDP demanded​ decreases, but​ Mexico's aggregate demand is unchanged

​Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment.

Money wage rate

Why does the aggregate demand curve slope​ downward? The aggregate demand curve slopes downward because​ _______.

Of the wealth effect and the substitution effect

Draw a​ short-run aggregate supply curve. Label it. As we move up along the​ short-run aggregate supply​ curve, ______.

Picture

How do a decrease in foreign income and a decrease in taxes change aggregate​ demand? Aggregate demand​ _______ when a decrease in foreign income occurs. Aggregate demand​ _______ when a decrease in taxes occurs.

Picture

If potential GDP​ increases, what happens to aggregate​ supply? When potential GDP​ increases, ______.

Picture

In the​ graph, the initially the aggregate supply curve is SAS0 and the aggregate demand curve is AD0. Some events change aggregate demand from AD0 to AD1. Describe two events that could have created this change in aggregate demand. What is the equilibrium after aggregate demand​ changed? If potential GDP is​ $1 trillion, the economy is at what type of macroeconomic​ equilibrium?

Picture

In​ Japan, potential GDP is 600 trillion yen and the table shows the aggregate demand and​ short-run aggregate supply schedules.

Picture

The following events have occurred at times in the history of the United​ States: 1. The world economy goes into an expansion. 2. U.S. businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Explain the combined effects of these events on U.S. real GDP and the price​ level, starting from a position of​ long-run equilibrium.

Picture

The graph gives a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. Draw a new curve that shows the effect of a rise in the money wage rate. Label it. With a rise in the money wage​ rate, ______.

Picture

The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in the expected future inflation rate. Label it. An increase in expected future income​ _______. An increase in the expected future inflation rate​ _______.

Picture

The graph shows an​ economy's long-run aggregate supply curve. Draw an aggregate demand curve and a​ short-run aggregate supply curve such that when the economy is in​ long-run equilibrium, the price level is 110. Label the curves. Draw a point at the​ long-run macroeconomic equilibrium. In the​ long-run macroeconomic​ equilibrium, ______.

Picture

The graph shows a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. Draw an arrow along one of the curves that illustrates a rise in the price level when the money wage rate remains unchanged. Label it 1. Draw an arrow along one of the curves that illustrates a rise in the price level accompanied by the same percentage rise in the money wage rate. Label it 2. An increase in the price level when the money wage rate remains unchanged increases​ ______.

Picture

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium.

Rises; decreases

Choose the correct statement about the LAS curve.

The LAS curve is vertical because potential GDP is independent of the price level.

Complete the sentences. 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 movement along​ ______. The quantity of real GDP supplied​ ______.

The SAS curve; increases

What does the aggregate demand curve​ show? What factors change and what factors remain the same when there is a movement along the aggregate demand​ curve? The aggregate demand curve shows the relationship between the quantity of real GDP demanded and​ ______ when everything else remains the same.

The price level

When does potential GDP​ increase? Potential GDP increases when​ _______.

The quantity of capital increases

When the price level in Mexico rises​, ​_______.

The quantity of real GDP demanded in Mexico decreases

Choose the correct statement.

The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports.

Choose the correct statement.

The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level.

Choose the correct statement.

The relationship between the quantity of real GDP supplied and the price level is different in the long run than in the short run.

Does inflation result from increases in aggregate​ demand, short-run aggregate​ supply, or​ long-run aggregate​ supply? Inflation results from​ ______.

a persistent increase in aggregate demand at a faster pace than that of the increase in​ long-run aggregate supply

Give some examples of fiscal policy that increase aggregate demand. Examples of fiscal policy that increase aggregate demand include​ ______.

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

When Mexico decreases the quantity of​ money, Mexico's aggregate demand​ ______.

decreases and its AD curve shifts leftward

The U.S. price level rises. This event​ _______.

decreases the quantity of real GDP demanded

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. Explain how a rise in wages in China will influence the quantity of real GDP supplied and aggregate supply in China. A rise in wages in China​ _______ .

decreases​ China's short-run aggregate supply and the quantity of real GDP supplied does not change

Wages Rising Faster than Prices Paychecks in Kansas are​ growing, according to the U.S. Department of Labor. Jacqueline​ Midkiff, with the​ department's office in Kansas​ City, says the average overall increase across the board through the​ Midwest, is 1.9 percent over this time last​ year, while inflation grew at 1.4 percent for the same time period. ​Source: Kansas Public Radio​, August​ 1, 2012 Explain how​ "the average overall increase across the​ board" wage increase will influence aggregate supply. The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply because it increases​ firms' costs

Complete the sentence. A rise in the money wage rate​ ______.

does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level

The Fed increases the quantity of money and all other things remain the same. Explain the effect of the increase in the quantity of money on aggregate demand in the short run. In the short​ run, aggregate demand​ _______.

increases because interest rates fall and it is it easier to get a loan to buy homes and large consumer goods

How do fluctuations in aggregate demand and​ short-run aggregate supply bring fluctuations in real GDP around potential​ GDP? Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______, and creates​ ______ gap.

increases real GDP above potential GDP; an inflationary

Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand. Automotive firms in the United States switch to a new technology that raises productivity. This event​ _______.

increases the quantity of real GDP demanded

The increase in investment​ ______ aggregate demand. The decrease in government spending​ _______ aggregate demand.

increases; decreases

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ potential GDP.

increases; decreases real GDP below

Autoworkers agree to a lower money wage rate. This event​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

increases; does not change

Gross Domestic Product for the First Quarter of 2017 The increase in real GDP in the first quarter primarily reflected increases in personal consumption​ expenditures, exports, and investment. Government spending decreased. ​Source: Bureau of Economic​ Analysis, June​ 29, 2017 Explain how the items in the news clip influence U.S. aggregate demand. The increase in the personal consumption expenditures​ ______ aggregate demand. The increase in exports​ ______ aggregate demand.

increases; increases

​Short-run aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant.

real GDP; Price level

A movement along the aggregate demand curve occurs if​ _______.

the price level changes and all other factors remain unchanged


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