Econ Chapter 24

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________. A. Keynesian economists; long run B. Keynesian economists; short run C. Neoclassical economists; long run D. Neoclassical economists; short run

Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed. A. total quantity; price level for output B. type of goods; input price of raw materials C. price of goods; number of employees D. total inputs; types of goods

The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called: A. real GDP. B. potential GDP. C. aggregate supply. D. aggregate demand.

The term "full employment GDP" is synonymous with which of the following? A. aggregate GDP B. Keynesian zone C. macroeconomic equilibrium D. potential GDP

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output. A. macroeconomic equilibrium B. aggregate supply (AS) C. aggregate demand (AD) D. potential GDP

_________________ results when an economy experiences high unemployment and high inflation at the same time. A. Stagflation B. Deflation C. Reflation D. Recession

Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy. A. potential GDP; value of supply B. total quantity of goods; price level for output C. natural rate of unemployment; full employment GDP D. value of supply; value of demand

When the economy of a country is operating close to its full capacity: A. the unemployment rate is greater than the natural rate of unemployment. B. cyclical unemployment is close to zero. C. unemployment is close to zero. D. the unemployment rate is less than the natural rate of unemployment.

Potential GDP in the U.S. will be unaffected by ____________________. A. technology B. the amount of capital available C. the unemployment rate D. government institutions

10. Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about: A. unemployment but not inflation. B. inflation but not unemployment. C. inflation and unemployment. D. neither inflation nor unemployment.

11. Referring to the above diagram, which of the following is a true statement? A. Macroeconomic policy will be needed to address rising inflation. B. There is sufficient aggregate demand to cause inflationary pressures. C. The equilibrium in the economy is at a level of output above full employment. D. There is insufficient aggregate demand to reach full employment.

12. The graph above reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to? A. an increase in economic growth B. an increase in input prices C. a decrease in the natural unemployment rate D. less inflationary pressures

13. The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? A. cyclical unemployment will decrease B. inflationary pressures will be greater C. the economy will experience lower economic growth D. input prices will rise in the short run

14. The graph above refers to a significant increase in oil prices. Which of the following is likely to result? A. long run economic gains B. short run economic gains C. natural rate of unemployment remains constant D. a rise in inflation from 2.0% to 3.0%

15. The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? A. unemployment is likely to rise B. natural rate of unemployment is likely to fall C. lower inflationary pressures D. short run increase in economic growth

16. The following table shows the aggregate supply and demand data for a country. What is the equilibrium output? A. 8,000 B. 4,000 C. 7,000 D. 9,000

17. The following table shows the aggregate supply and demand data for a country. What is the equilibrium price level? A. 200 B. 400 C. 500 D. 800

18. The following table shows the initial aggregate supply and demand data for a country. If input prices rise and AS shifts to the left by 2,000 units at each price level, what output level will equal the new equilibrium price? A. 6000 B. 2000 C. 8000 D. 7000

19. The following table shows the aggregate supply and demand data for a country. If input prices decrease and AS shifts to the right by 3,000 units at each price level. What will the new price equal? A. 600 B. 800 C. 300 D. 400

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be: A. indefinite B. unknown C. long-term D. short-term

If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected? A. determinates of total supply for the economy will be traded-off B. trade-offs and connections may differ in the short run and the long run C. the economy will face genuine limits to how much can be produced D. institutional and market structures will connect factors of production

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: A. the maximum potential GDP will be exceeded. B. increase in quantity produced won't be large. C. a majority of industries will start running into limits. D. higher profits will induce expanded production.

_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment. A. The foreign price effect B. Stagflation C. Full employment GDP D. The interest rate effect

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions? A. GDP deflator B. AS curve C. potential GDP D. aggregate supply

In an AD/AS model, the point where the economy has excess capacity is called the: A. Keynesian zone of the AS curve B. intermediate zone of the AS curve C. neoclassical zone of the AS curve D. crossing point of the potential GDP line

In an AD/AS model: A. the GDP deflator always slopes upwards. B. the potential GDP always slopes downwards. C. the CPI is shown on the vertical axis. D. real GDP is shown on the horizontal axis.

Which of the following must be present in order for the aggregate supply curve to form an upward slope? A. the lure of higher profits to induce continued production B. fixed cost of inputs combined with rising prices for outputs C. rise in aggregate quantity of supplied goods and services D. constant price level for intermediate goods and services

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting: A. hyper-intense production will be unsustainable in the long run. B. higher wages will encourage workers to produce more at high prices. C. lower prices will lead to a lower quantity of demand. D. downward slope in aggregate supply curve will be short run.

Due to inflationary pressures, the national income of households has been spread across a higher overall price base for goods and services. How will this affect be shown in an AD/ASAD/AS model? A. nearly vertical AS slope at the far right B. nearly horizontal AD curve at the far left C. a downward sloping AD curve D. a downward sloping AS curve

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment. A. inflation rate effect B. interest rate effect C. wealth effect D. price effect

Why is productivity growth considered to be the most important factor in the AD/AS AD/AS model? A. it shifts the AD curve in the long-term B. it shifts the AD curve in the short-term C. it shifts the AS curve in the short-term D. it shifts the AS curve in the long-term

Changes in the price level of the different components of aggregate demand are reflected in the AD/AS AD/AS macroeconomic model by a ________________________. A. flatter top portion of AD curve B. longer distance to equilibrium point C. downward sloping AD curve D. shorter distance to equilibrium point

Which of the following will have the greatest influence on the slope of the demand curve in a single market model? A. wealth effects B. substitute goods C. full employment D. higher wages

As the aggregate price level in an economy rises, ____________________. A. interest rates increase B. consumer demand increases C. exports decrease D. investment increases

As the aggregate price level in an economy decreases, A. investment decreases. B. consumer demand decreases. C. interest rates decrease. D. imports decrease.

Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. C. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. D. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending.

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output. A. relatively flat; remain flat B. relatively steep; remain steep C. relatively flat; relatively steep D. relatively steep; relatively flat

In an AD/ASAD/AS diagram, __________________________ could explain a rise in cyclical unemployment? A. a shift to the left in either AS or AD B. a shift in AS to the left C. a shift in AS to the right D. a shift in AD to the left

In an AD/AS diagram, an increase in structural unemployment will: A. shift AS to the right. B. have no effect on AS or AD. C. shift AS to the left. D. shift AD to the left.

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________. A. AS; left B. AD; left C. AD; right D. AS; right

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line. A. AS curve B. AD curve C. equilibrium D. AS and AD curve

The __________________ in an AD/AS diagram is most relevant to Keynes's Law. A. AS curve B. flat portion of the AS curve C. AD curve D. steep portion of the AS curve

The ____________________ in an AD/AS diagram is most relevant to Say's Law. A. steep portion of the AS curve B. AS curve C. AD curve D. flat portion of the AS curve

The _________________ means that a higher price level leads to lower real wealth. A. employment effect B. interest rate effect C. wealth effect D. foreign price effect

The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports. A. interest rate effect; encouraging; discouraging B. employment effect; discouraging; encouraging C. wealth effect; encouraging; discouraging D. foreign price effect; discouraging; encouraging

Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save? A. recession B. depression C. deflation D. stagflation