DSM 10 – Flashcard
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In the short run, an unexpected decrease in oil prices will
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decrease the price level but increase Real GDP
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The aggregate demand curve shows the relationship between
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the price level and quantity of real GDP demanded
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If the economy moves into a recession, monetarists argue that the Fed should
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keep the money supply growing at a constant rate
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How can government policies shift the aggregate demand curve to the right?
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By increasing government purchases
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Monetarism is a school of economic thought that favors
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a monetary growth rule
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According to Keynesian theory, fiscal policymakers can combat the impact of recessions by
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increasing government spending
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An increase in government spending will shift the AD curve from the initial AD curve to the curve labeled
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increased AD
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Factor that will cause long-run aggregate supply curve to shift to the right
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the accumulation of more machinery and equipment
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If firms reduce investment spending and the economy enters a recession, _____ contributes to the adjustment that causes the economy to return to its long-run equilibrium
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the eventual agreement by workers to accept lower wages
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In the long-run, the level of output is
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the full-employment level of output
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The classical view assumes
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money wage rates adjust quickly
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The aggregate demand and the aggregate supply model explains
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short-run fluctuations in real GDP and the price level
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According to the graph (not shown), in this economy there will be a tendency for
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both wages and prices to rise over time
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The wealth effect refers to the fact that
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when the price level falls, the real value of household wealth rises, and so will consumption
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The long-run aggregate supply curve
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shifts to the right as technological change occurs
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A higher exchange rate will result in
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a decrease in net exports and a decrease in aggregate demand
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The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point
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on the long-run aggregate supply curve
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Keynes maintained that the economy could remain long-term at levels of output below the full-employmeent level of output due to
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sticky wages
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__________ advocates active government intervention via fiscal policy when the economy is in recession.
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Keynesian theory
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A monetary growth rule that might be supported by a monetarist would be a plan
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for the Federal Reserve to increase the quantity of money at a fixed rate and not respond to economic fluctuations
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Causes the aggregate demand curve to shift
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a change in the expectations of households and firms
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According to the graph, an increase in the quantity of money is best described by
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the shift in the AD curve
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factor that will shift the short-run aggregate supply to the left
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decrease in the size of the labor force
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New classical theorists believe that
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the uneven pace of technological change is the most significant cause of business cycle fluctuations
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Combination of inflation and recession
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stagflation
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The 1974-1975 recession was a result of a
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leftward shift of the short-run aggregate supply curve
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policy that affects the economy through intended changed in the quantity of money and interest rates
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monetary policy
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this shifts the aggregate demand curve to the right
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lower interest rates
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When aggregate demand increases, unemployment will usually __________ and inflation will __________
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fall,rise
