All of the following would shift the LRAS curve to the right except?
answer
an increase in the overall price level.
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Long-run aggregate supply reflects?
answer
total production in the economy at full employment.
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The long-run aggregate supply curve is vertical because?
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the economy has reached its potential real GDP and is at full employment.
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A country's long-run aggregate supply curve will shift to the left when there is/ are?
answer
a reduction in the labor force.
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The real output of the economy under conditions of full employment?
answer
is long-run aggregate supply.
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The long-run aggregate supply when resources are fully employed?
answer
will always be associated with a point on the production possibilities curve.
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The long-run aggregate supply curve is?
answer
vertical.
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Other things being equal, the economy's aggregate demand curve shows that?
answer
a change in the general price level causes a change in the quantity of final goods and services purchased.
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When a change in the price level causes a change in the purchasing power of currency, which then changes planned real expenditures at all income levels, this is called?
answer
the real-balance effect.
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A price level increase tends to reduce net exports, which reduces the amount of real goods and services that are purchased in the United States. Economists refer to this phenomenon as?
answer
the open-economy effect.
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One impact of a rise in the dollar's value is that?
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imports will become cheaper for the U.S. consumer.
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If the price level increases?
answer
domestic goods are more expensive relative to foreign goods, which reduces total planed real expenditures.
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Which of the following would cause aggregate demand to decrease?
answer
The government increases taxes on both business and personal income.
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An aggregate demand curve?
answer
shifts to the right when a non-price level change increases total planned real expenditures.
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A persistently declining price level that results from economic growth and unchanged aggregate demand is called?
answer
secular deflation.
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An increase in the amount of physical capital will cause?
answer
an increase in both aggregate supply and real GDP, and a reduction in the price level.
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What would happen in an economy if total planned production exceeded total planned real expenditures?
answer
Inventories would accumulate, and firms would tend to lower prices.
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If consumers' confidence in the economy rises?
answer
aggregate demand will shift rightward and the price level will rise.
question
Supply-side inflation could be caused by which of the following?
answer
A decrease in long-run aggregate supply
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Which of the following is the most likely explanation for inflation in the United States?
answer
increases in aggregate supply
question
The aggregate supply curve?
answer
relates planned aggregate production to price level.
question
Long-run aggregate supply reflects?
answer
total production in the economy at full employment.
question
A country's long-run aggregate supply curve will shift to the left when there is/ are?
answer
a reduction in the labor force.
question
The real output of the economy under conditions of full employment?
answer
is long-run aggregate supply.
question
The long-run aggregate supply curve is?
answer
vertical.
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Refer to the above figures. Which panel(s) represent economic growth?
answer
Panels A and C only
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The total level of all planned expenditures in the economy best describes?
answer
-aggregate demand.
-aggregate expenditures.
question
The aggregate demand curve shows that, if other factors are held constant?
answer
higher price levels will result in lower total planned spending.
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According to the interest rate effect, an increase in the price level (if other factors are held constant) will lead to?
answer
a reduction in total real spending on interest-rate-sensitive goods.
question
The real-balance effect refers to?
answer
the change in the value of cash balances due to price level changes.
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A weakening in consumer confidence causes a?
answer
shift of the aggregate demand curve to the left.
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In the above figure, a movement from point B to point C could be explained by?
answer
increased government spending.
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To find an economy's long-run equilibrium price level, locate the point where ________ and ________ cross and look to the left?
answer
long-run aggregate supply; aggregate demand
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Which of the following is the most likely explanation for inflation in the United States?
answer
increases in aggregate demand
question
The aggregate supply curve?
answer
relates planned aggregate production to price level.
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The long-run aggregate supply curve will shift to the left when?
answer
population decreases.
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The values on the axes of the long-run aggregate supply diagram are?
answer
real GDP per year and the price level.
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All of the following explain the downward slope of the aggregate demand curve except?
answer
the presence of unused production capacity and unemployment.
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Supply-side inflation is caused by?
answer
a decrease in aggregate supply and no change in aggregate demand.
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A rightward shift of long-run aggregate supply without any change in aggregate demand?
answer
will result in a lower price level.
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Whenever the general level of prices rises because of continual increases in aggregate demand, economists would say that the economy is experiencing?
answer
demand-side inflation.
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Over time in a growing economy, the long-run aggregate supply curve will?
answer
shift outward to the right.
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A persistently declining price level that results from economic growth and unchanged aggregate demand is called?
answer
secular deflation.
question
If consumers' confidence in the economy rises?
answer
aggregate demand will shift rightward and the price level will rise.
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An increase in the money supply will cause which of the following to occur?
answer
A rightward shift of the aggregate demand curve
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Over the past several decades, what has been true about price levels in the United States?
answer
Inflation rates have been consistently positive.
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Which of the following is not an assumption of the classical model?
answer
Wages and prices are fixed.
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The idea that supply creates its own demand is known as?
answer
Say's law.
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In the classical model, an increase in aggregate demand will cause?
answer
an increase in price level.
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According to the classical model, the income that is generated by production is?
answer
enough to purchase all the goods and services produced.
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A classical model of the economy predicts?
answer
full employment in the long run.
question
According to classical economists, a decrease in the rate of interest will?
answer
increase business investment.
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Full employment in the classical model is maintained by?
answer
flexible wage rates.
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According to the Keynesian model, the short-run aggregate supply (SRAS) curve is horizontal when?
answer
there are unemployed resources and prices do not fall when aggregate demand falls.
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The Keynesian model is basically?
answer
a short-run theory.
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A decrease in aggregate demand will cause?
answer
prices to fall according to classical economists, and unemployment to increase according to Keynes.
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According to Keynes, wages are inflexible because?
answer
of unions and long-term contracts.
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Which of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?
answer
The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined.
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The Keynesian short-run aggregate supply curve in the simplified Keynesian model is unrealistic because?
answer
some price adjustments do take place in the short run.
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Which of the following is not an event that causes both the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve to shift?
answer
A temporary change in the price of a key input
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The short-run aggregate supply curve would shift and the long-run aggregate supply curve would remain fixed if?
answer
there was a temporary shock that influenced the supply side.
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A short-lived increase in oil prices that is caused by the destruction of oil-producing and oil-refining facilities by a large hurricane will?
answer
shift the SRAS curve to the left.
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A change in tastes for U.S. produced goods will?
answer
shift the aggregate demand curve.
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Which of the following actions would cause the aggregate demand curve to shift to the left?
answer
A decrease net export spending caused by an appreciation of the home currency
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The significant run-up in oil prices during the late 2000s was an example of?
answer
an aggregate supply shock that increased the price level and reduced the rate of growth of real GDP.
question
Demand-pull inflation is caused by?
answer
aggregate demand decreasing along an upward-sloping or a vertical aggregate supply curve.
question
According to the classical model, the income that is generated by production is?
answer
enough to purchase all the goods and services produced.
question
A classical model of the economy predicts?
answer
full employment in the long run.
question
According to classical economists, a decrease in the rate of interest will?
answer
increase business investment.
question
According to the classical theory, the aggregate supply curve is?
answer
vertical.
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If a shift in aggregate demand only affects real GDP, the short-run aggregate supply (SRAS) curve must be?
answer
horizontal.
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The short-run aggregate supply curve in modern Keynesian analysis represents the relationship between?
answer
the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior.
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An upward-sloping short-run aggregate supply curve suggests that?
answer
prices and wages adjust in part to short-run demand changes.
question
Which of the following would increase aggregate supply?
answer
-Increased training and education
-A reduction in input prices
-A discovery of new raw materials
question
The gap that exists when equilibrium real GDP is greater than full employment real GDP is called a(n)?
answer
inflationary gap.
question
At higher rates of interest?
answer
households save more because they get a greater return on their savings.
question
The Keynesian short-run aggregate supply curve in the simplified Keynesian model is unrealistic because?
answer
some price adjustments do take place in the short run.
question
Inflation that is caused by an increase in aggregate demand that is not matched by an increase in aggregate supply is called?
answer
demand-pull inflation.
question
Cost-push inflation occurs?
answer
when the aggregate supply curve shifts to the left, while aggregate demand remains stable.
question
According to the circular flow of income and output, saving causes?
answer
consumption expenditures to fall short of total output.
question
All of the following are assumptions of the classical model except?
answer
inflexible wages.
question
According to classical theory, a shift in aggregate demand will affect?
answer
the price level only.
question
How is investment defined as an economic concept?
answer
Investment is primarily the sum of expenditures by businesses on new capital goods that will yield a future stream of income.
question
Keynesian theory is based on the hypothesis that?
answer
saving and consumption are influenced primarily by real current disposable income.
question
Which of the following is true?
answer
MPC + MPS = 1
question
Dissaving occurs when?
answer
disposable income is less than consumption.
question
According to Keynes?
answer
both consumption and saving are positively related to real disposable income.
question
The average propensity to consume is the?
answer
percentage of total disposable income consumed.
question
The marginal propensity to consume explains how much of the next dollar of disposable income?
answer
a household will spend.
question
The amount that people plan to consume at various levels of disposable income is known as?
answer
the consumption function.
question
Marginal propensity to consume?
answer
gives the amount a person changes planned consumption for a change in real disposable income.
question
An increase in the interest rate will cause?
answer
planned investment spending to decrease.
question
Which of the following is a true statement relative to retained earnings and investment?
answer
Lower interest rates reduce the opportunity cost of retained earnings, which stimulates the use of these funds in investment.
question
The larger is the marginal propensity to consume (MPC)?
answer
the larger the multiplier.
question
The multiplier effect tends to?
answer
magnify small changes in spending into much larger changes in real gross domestic product (GDP).
question
A decrease in autonomous investment of $100 that occurs when the marginal propensity to save (MPS) equals 0.25 will lead to a decrease in real GDP of?
answer
$400.
question
The multiplier equals?
answer
1/(1 - MPC).
question
A rise in the price level causes?
answer
a reduction in total planned real expenditures.
question
Thinking as an economist would, which is true of investment?
answer
Investment represents spending on capital goods.
question
Consumption goods?
answer
are only the goods that are bought by households for immediate satisfaction.
question
Which of the following statements is true?
answer
Consumption + saving = disposable income
question
Suppose that the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?
answer
Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures.
question
Saving differs from savings in that?
answer
saving is a flow, while savings is a stock.
question
Autonomous consumption is?
answer
consumption spending that does not depend on the level of income.
question
If the marginal propensity to save (MPS) = 0.1, then?
answer
the MPC = 0.9.
question
In the Keynesian model, government spending is considered?
answer
to be autonomous.
question
Suppose that the marginal propensity to consume (MPC) is 0.8, and there is a $2,000 increase in autonomous consumption. Given this information, real GDP will increase by?
answer
$10,000.
question
A rise in the price level causes?
answer
a reduction in total planned real expenditures.
question
A permanent reduction in net exports leads to?
answer
a more than proportional decrease in real GDP.
question
In the Keynesian model, whenever planned saving exceeds planned investment?
answer
there will be unplanned inventory accumulation.
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