Macro Chapter 11 HW

5 October 2022
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If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected?
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trade-offs and connections may differ in the short run and the long run
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If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:
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higher profits will induce expanded production.
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___________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.
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Full employment GDP
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In an AD/AS model, the point where the economy has excess capacity is called the:
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Keynesian zone of the AS curve
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Keynesian Zone
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the portion of the Short Run Aggregated Supply curve where GDP is far below potential and the Short Run Aggregated Supply curve is flat.
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Neoclassical Zone
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portion of the Short Run Aggregated Supply curve where GDP is at or near potential output where the Short Run Aggregated Supply curve is steep.
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Intermediate Zone
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portion of the Short Run Aggregated Supply curve where GDP is below potential but not so far below as in the Keynesian zone; the Short Run Aggregated Supply curve is upward-sloping, but not vertical in the intermediate zone.
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In an AD/AS model:
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real GDP is shown on the horizontal axis.
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When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:
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hyper-intense production will be unsustainable in the long run.
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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?
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Nearly vertical AS slope at the far right
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The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.
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interest rate effect
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Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?
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it shifts the AS curve in the short-term
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Which of the following will have the greatest influence on the slope of the demand curve in a single market model?
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higher wages
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As the aggregate price level in an economy rises, ____________________.
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interest rates increase
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As the aggregate price level in an economy decreases
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imports decrease
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Aggregate demand curves slope downwards for each of the following reasons EXCEPT
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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.
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In an AD/AS diagram, an increase in structural unemployment will:
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shift AS to the left.
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Structural Unemployment
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individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills.
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frictional unemployment.
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The unemployment that occurs as workers move between jobs
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When an economy's output increases and the price level decreases, the ________ curve has shifted to the ____________.
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AS; right
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Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.
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equilibrium
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The _________________ means that a higher price level leads to lower real wealth.
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wealth effect
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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?
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deflation
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deflation
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reduction of the general level of prices in an economy.
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inflation
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increase of the general level of prices in an economy.
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___________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the ____________.
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Neoclassical economists; long run
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Aggregate supply (AS) denotes the relationship between the ______________ that firms choose to produce and sell and the_____________, holding the price of inputs fixed.
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total quantity; price level for output
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The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called:
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potential GDP.
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_________ results when an economy experiences high unemployment and high inflation at the same time.
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stagflation
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Say's Law argues that a given _______ must create an equivalent _______ somewhere else in the economy.
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value of supply; value of demand
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When the economy of a country is operating close to its full capacity:
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cyclical unemployment is close to zero.
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cyclical unemployment
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workers losing their jobs due to business cycle fluctuations in output
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Potential GDP in the U.S. will be unaffected by ____________________.
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the unemployment rate
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Figure 1 Refer to the graph Figure 1 above. A government creating economic policy in these circumstances should be most concerned about:
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inflation but not unemployment.
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The graph Figure 2 below reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to?
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an increase in input prices
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Figure 3 The graph Figure 3 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?
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unemployment is likely to rise
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Look at table 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?
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6000
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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:
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short term