Smart Book Chapter 32
Select the two stages of changes in aggregate demand
- A change in a determinant that causes an initial change in the amount of real GDP demanded. - A multiplier effect that magnifies a change in spending to produce a larger ultimate change in aggregate demand.
Which of the following are determinants of aggregate demand?
- Change in consumer wealth - Change in investment spending
Which of the following are the four components or determinants of aggregate demand?
- Consumer spending - Government spending - Investment spending - Net export spending
An increase in the price level results in which of the following effects?
- Decrease in investments - Decrease in the level of consumption
Which of the following result from a reduction in personal income tax rates on consumers?
- Increased take-home income - Increasing consumer purchases at each possible price level
Select all the choices that explain what happens with dropping price levels.
- People demand more output. - Real balances rise.
Select all the choices that explain what happens with rising price levels.
- Purchasing power drops. - Real balances drop. - People demand less output.
Which of the following influence expected returns on investment projects?
- Technology - Expectations about future business conditions - Business taxes - Degree of excess capacity
Which statements summarize why the income and substitution effects do not explain the downward sloping aggregate demand curve?
- When the general price level is lower, there is not necessarily an increase in nominal income. - When the general price level falls, the substitution effect on domestically produced goods is not applicable.
The foreign purchases effect occurs when ______.
- a decline in the US price level increases the quantity of US goods demanded as net exports - a rise in the US price level reduces the quantity of US goods demanded as net exports
Which of the following explain the reasons for the downward slope of the aggregate demand curve?
A higher price level decreases the purchasing power of the publics' accumulated savings balances.
How is the real-balances effect defined?
A higher price level reduces the purchasing power of the public's accumulated savings balances.
Investment spending refers to purchases of which of the following?
Capital goods
The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply.
False
The interest-rate effect occurs when a higher price level decreases the demand for money, thereby increasing the interest rate, assuming a fixed money supply. True false question.
False
Investment spending depends on the real ____ rate and the expected return from _____ (Enter only one word per blank.)
Interest; investment
What is the least stable component of aggregate demand?
Investment
____ spending will fall if firms' outlook on the economy is pessimistic.
Investment
Which of the following enhance the expected returns on investment and thus increase aggregate demand?
New and improved technology
Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?
The level of consumption increases, investment increases, and net exports increase.
Why does the substitution effect fail to explain the downward slope of the aggregate demand curve?
The substitution effect does not work when prices fall together in groups.
Businesses and consumers will decrease investment spending and interest-sensitive consumption spending, respectively, when interest rates are higher. True false question.
True
True or false: A change in the price level will change the amount of aggregate demand and the amount of real GDP demanded.
True
True or false: The interest-rate effect that results from a change in price level is different from a change in the real interest rate that results from a change in the nation's money supply.
True
A decrease in investment and subsequent shift of the aggregate demand curve to the left is due to ______.
a decline in firms' expected returns
The wealth effect is reflected by ______.
a rightward shift of the aggregate demand curve
Investment spending refers to ______
adding to physical capital
Raising business taxes shift the ______.
aggregate demand curve to the left
If consumers expect inflation in the near future, consumers will want to buy more products now and ______.
aggregate demand will increase
A schedule or curve that shows the amount of a nation's output (real GDP) that buyers collectively desire to purchase at each possible price level is called
aggregate demand.
A decrease in taxes will lead to ______.
an increase in aggregate demand
When firms realize that their excess capacity is shrinking, investment spending ______.
and aggregate demand (AD) will increase
Consumer wealth is defined as the total value of ______.
assets minus the total value of liabilities
According to the foreign purchases effect, an increase in U.S. domestic price levels will ____ (one word) net exports.
decrease
An increase in the interest rate and subsequent decreases in investment and aggregate demand could be the result of a _____ in the money supply.
decrease
When interest rates are higher, businesses and consumers will
decrease investment spending and interest-sensitive consumption spending.
When interest rates are higher, businesses and consumers will:
decrease investment spending and interest-sensitive consumption spending.
A decline in expected returns will ______ investment and shift the aggregate demand curve to the ______.
decrease, left
An increase in real interest rates will ______ investment spending and ______ borrowing costs.
decrease; increase
A higher price level _____ the real value or purchasing power of the public's accumulated savings balances
decreases
If consumers expect lower future prices, current consumption spending ______ and the aggregate demand curve shifts to the ______.
decreases; left
Aggregate ____ is a schedule or curve that shows the amount of real GDP that buyers collectively desire to purchase at each possible price level.
demand
A decrease in investment spending at each price level will shift the aggregate ______.
demand curve to the left
Factors that, if they change, shift the aggregate demand curve, are known as ______ of aggregate demand.
determinants
The "other things" that change and shift the aggregate demand curve are called the ____ of aggregate demand or aggregate demand shifters.
determinants
The interest rate effect causes the aggregate demand to be ______.
downward sloping
Technological advancements will ______ expected returns on investment and ______ aggregate demand.
enhance; increase
New and improved technologies will increase investment spending by ______.
enhancing expected return on investment
When the price level rises, real GDP demanded will _____.
fall
When the US price level rises relative to foreign price levels and exchange rates are not very responsive, US exports will ______ and US imports will ______.
fall; rise
True or false: The aggregate demand curve slopes downward because it reflects a direct relationship between the price level and the amount of real output demanded
false
When the price level rises, real GDP demanded increases.
false
When the US price level rises relative to foreign price levels, ______
foreigners buy fewer US goods and Americans buy more foreign goods
At any amount of nominal balances, a person's real balances will be ______ if the price level drops and ______ if the price level rises.
higher; lower
A higher than expected return on investment will _____ the demand for capital goods.
increase
A rise in consumer wealth will ______ consumer spending.
increase
Aggregate demand will rise if consumers expect prices to _____ in the future.
increase
An increase in consumer wealth prompts consumers to decrease savings and ____ spending.
increase
Investment spending and aggregate demand will ____ when excess capacity dwindles.
increase
New and improved technology, seen as investment spending by firms will lead to a(n) ____ in aggregate demand
increase
The aggregate demand (AD) curve will shift to the right when consumers expect their future incomes to ___
increase
When price levels fall, real GDP demanded will _______.
increase
A decrease in the money supply is likely to cause a(n) ______ in interest rates, and subsequent ______ in investments and aggregate demand.
increase, decreases
The foreign purchases effect occurs when the US price level ____ relative to foreign price levels and the quantity of US goods demanded as net exports decreases.
increases
When price levels fall, the quantity of real GDP demanded will ____
increases
The interest-rate effect creates a downward sloping aggregate demand curve because a higher price level ______.
increases money demand which increases interest rates and decreases the amount of real GDP
If consumers expect their future real incomes to rise, current consumption spending ______ and the aggregate demand curve shifts to the ______.
increases; right
When a higher price level increases the demand for money, which will drive up the price paid for its use, assuming a fixed money supply, it is called the ______ effect.
interest-rate
The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______
inverse
The aggregate demand curve is downward sloping because the relationship between the price level and real GDP is ______.
inverse
The downward sloping aggregate demand curve indicates that there is a(n) _____ relationship between the price level and real GDP
inverse
The downward sloping aggregate demand curve indicates that there is a(n) ____ relationship between the price level and real GDP
inverse,
Expectations about future business conditions, technology, degree of excess capacity and business taxes are all factors that influence ______.
investment spending
A decline in investment spending at each price level will shift the aggregate demand curve to the ____
left
A tax increase will reduce consumption and shift the aggregate demand (AD) curve to the ___
left
An increase in business taxes will shift the aggregate demand curve to the _____
left
If consumers expect their future income to be lower, they may reduce their current consumption which would shift that aggregate demand curve to the ____
left
If consumers increase their saving rate in order to pay off their debts the aggregate demand (AD) curve will shift to the ___
left
An increase in real interest rates will ______ investment spending and ______ aggregate demand
lower; reduce
The second stage of changes in aggregate demand is a ______.
multiplier effect that produces a larger change in aggregate demand
A change in interest rate may result from a change in the money supply, while the "interest-rate effect" results from a change in ______.
price level
A reduction in personal income tax will _______.
raise take-home income and increase consumer purchases
Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______
raise; interest rate
Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______.
raise; interest rate
If you liquidate all of your assets and use the money to buy products, the real output you can purchase at current prices makes up your ______.
real balances
The ______ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.
real-balances effect
A higher price level _____ the real value or purchasing power of the public's accumulated savings balances.
reduces
A tax cut will shift the aggregate demand (AD) curve to the ____
right
If there is an increase in consumption spending caused by consumer borrowing, the aggregate demand (AD) curve will shift to the ____
right
The increase in consumer spending that results from an increase in consumer wealth will shift the aggregate demand curve to the ___
right
Changes in consumer spending, investment, government spending and net export spending will:
shift the aggregate demand curve
A decline in investment spending at each price level will ______.
shift the aggregate demand curve to the left
A decrease in borrowing by consumers for consumption spending will ______.
shift the aggregate demand curve to the left
An increase in investment spending at each price level will ______.
shift the aggregate demand curve to the right
Other things being equal, according to the aggregate demand curve, a decrease in the price level will increase the amount of aggregate _____.
spending
The aggregate demand curve would shift to the left if ______.
taxes increased
Businesses will invest less if:
they are pessimistic about future business conditions
An unexpected increase in asset values that results in an increase in consumer spending is called the ____ effect.
wealth
An unexpected increase or decrease in asset values that results in a change in consumer spending is called the ______ effect.
wealth
The total dollar value of all assets owned by consumers in the economy less the dollar value of their liabilities is called consumer ___
wealth