The aggregate demand curve: |
shows the amount of real output that will be purchased at each possible price level. |
The aggregate demand curve is: |
downsloping because of the interest-rate, real-balances, and foreign purchases effects. |
The real-balances effect indicates that: |
a higher price level will decrease the real value of many financial assets and therefore reduce spending. |
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: |
increase U.S. imports and decrease U.S. exports. |
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: |
the foreign purchases effect. |
The interest-rate effect suggests that: |
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. |
The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: |
determinants of aggregate demand. |
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: |
aggregate demand curve would shift to the right. |
Other things equal, a decrease in the real interest rate will: |
expand investment and shift the AD curve to the right. |
A decline in investment will shift the AD curve to the: |
left by a multiple of the change in investment. |
An increase in net exports will shift the AD curve to the: |
right by a multiple of the change in investment. |
If investment increases by $10 billion and the economy’s MPC is .8, the aggregate demand curve will shift: |
rightward by $50 billion at each price level. |
If investment decreases by $20 billion and the economy’s MPC is .5, the aggregate demand curve will shift: |
leftward by $40 billion at each price level. |
An economy’s aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: |
multiplier effect. |
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)? |
An appreciation of the U.S. dollar. |
Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand? |
$50 billion. |
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to: |
increase aggregate demand. |
The immediate-short-run aggregate supply curve represents circumstances where: |
both input and output prices are fixed. |
The aggregate supply curve: |
shows the various amounts of real output that businesses will produce at each price level. |
The aggregate supply curve (short run): |
slopes upward and to the right. |
Productivity measures: |
real output per unit of input. |
Per-unit production cost is: |
total input cost divided by units of output. |
Other things equal, a reduction in personal and business taxes can be expected to: |
increase both aggregate demand and aggregate supply. |
Other things equal, an improvement in productivity will: |
shift the aggregate supply curve to the right. |
The short-run aggregate supply curve represents circumstances where: |
input prices are fixed, but output prices are flexible. |
The economy’s long-run aggregate supply curve: |
is vertical. |
The economy’s long-run AS curve assumes that wages and other resource prices: |
eventually rise and fall to match upward or downward changes in the price level. |
The equilibrium price level and level of real output occur where: |
the aggregate demand and supply curves intersect. |
Graphically, demand-pull inflation is shown as a: |
rightward shift of the AD curve along an upsloping AS curve. |
Graphically, cost-push inflation is shown as a: |
leftward shift of the AS curve. |
If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: |
the price level is inflexible downward and a recession has occurred. |
In which of the following sets of circumstances can we confidently expect inflation? |
Aggregate supply decreases and aggregate demand increases. |
Prices and wages tend to be: |
flexible upward, but inflexible downward. |
Efficiency wages are: |
above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. |
When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: |
wage contracts. |
When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: |
reduce worker morale and work effort, and thus lower productivity. |
Menu costs: |
are the costs to firms of changing prices and communicating them to customers. |
The fear of unwanted price wars may explain why many firms are reluctant to: |
reduce prices when a decline in aggregate demand occurs. |
(Consider This) The ratchet effect is the tendency of: |
the price level to increase but not to decrease. |
Economics Chapter 12
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