During a recession the economy experiences? |
falling employment and income |
When we say that economic fluctuations are "irregular and unpredictable," we mean that? |
recessions do not occur at regular intervals |
The aggregate demand curve? |
shows an inverse relation between the price level and the quantity of all goods and services demanded |
Which of the following is included in the aggregate demand for goods and services? |
consumption demand, investment demand, net exports |
The effect of an increase in the price level on the aggregate demand curve is represented by a? |
movement left along a given aggregate demand curve |
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for? |
the slope of the aggregate demand curve shift |
The aggregate quantity of goods and services demanded changes as the price level rise because? |
real wealth falls, interest rates rise, and the dollar appreciates |
Other things the same, an increase in the price level makes the dollars people hold worth? |
less, so they can buy less |
Other things the same, an increase in the price level makes consumers feel? |
less wealthy, so the quantity of goods and services demanded falls |
As the price level rises? |
people are less willing to lend, so interest rates rise. |
When the price level falls? |
people want to hold less money, the interest rate falls, investment spending rises |
Other things the same, when the price level falls interest rates? |
fall, so firms increase investment |
Other things the same, if the price level rises, then domestic interest rates? |
rise, so domestic residents will want to hold fewer foreign bonds |
Other things the same, when the price level falls, interest rates? |
fall, which means consumers will want to spend more on homebuilding |
When the dollar depreciates, U.S.? |
exports increase, while imports decrease |
A decrease in the U.S. interest rates leads to? |
a depreciation of the dollar that leads to greater net exports |
When taxes increase, consumption? |
decreases, so aggregate demand shifts left |
Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift? |
aggregate demand left |
When the money supply increases? |
interest rates fall and so aggregate demand shifts right |
Which of the following both shift aggregate demand right? |
net exports ruse for some reason other than a price change and the money supply rises |
If speculators lost confidence in foreign economies and so wanted to buy more U.S. bonds? |
the dollar would appreciate which would cause aggregate demand to shift left |
Which of the following is not a determinant of the long run level of real GPD? |
the price level |
The long run aggregate supple curve shifts right if? |
immigration from abroad increases, the capital stock increases, technology advances |
Which of the following shifts long run aggregate supply right? |
an increase in either the physical or human capital stock |
The discovery of a large amount of previously undiscovered oil in the U.S. would shift? |
the long run aggregate supple curve to the right |
The aggregate supply curve us upward sloping in? |
the short run but not the long run |
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,? |
production is more profitable and employment rises |
Sticky nominal wages can result in? |
lower profits for firms when the price level is lower than expected |
The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have? |
lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied |
An increase in the expected price level shifts the? |
the short-run but not the long-run aggregate supply curve left. |
Which of the following shifts both short run and long run aggregate supply left? |
a decrease in the capital stock |
Which of the following would cause prices and real GPD to rise in the short run? |
aggregate demand shifts right |
If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level? |
is lower and output is the same as the original long run equilibrium |
In which case can we be sure real GDP rises in the short run? |
foreign economies expand and taxes fall |
An economic contraction caused by a shift in aggregate demand causes prices to? |
fall in the short run and fall even more in the long run |
Conaider the AS/AD model. Which of the following shifts the aggregate demand curve rightward? |
an increase in consumer income |
Suppose over the next several years, the price of oil in the U.S. falls dramatically. This change will likely lead to? |
an increase(rightward shift) in short run aggregate supply |
Which of the following will increase potential GDP (natural level of output)? |
an increase in the full employment quantity of labor |
Begin at full employment equilibrium. Assume the Fed increases the money supply, and the economy self-adjusts to full employment. When comparing the starting equilibrium to the final equilibrium, we find? |
only the price level will be affected |
Which of the following would result in a recession? |
a drastic increase in the price of oil |
Begin at full employment equilibrium. An increase in government expenditures on goods and services creates? |
and inflationary gap and lower unemployment |