question

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called:

answer

Fiscal policy.

question

To eliminate a recessionary gap, policy-makers may pursue:

answer

An expansionary policy that increases aggregate demand.

question

All of the following are held constant along a short-run aggregate supply curve except:

answer

Output prices.

question

When the Great Depression reached tis trough in 1933, real GDP has fallen by _____ since the depression began in 1929.

answer

30%.

question

All of the following statements is true about the short-run aggregate supply curve except:

answer

It is drawn holding price level constant.

question

A change in the aggregate quantity of goods and services supplied at every price level is called a:

answer

Change in short-run aggregate supply.

question

To eliminate an inflationary gap, policy-makers may pursue:

answer

A contractionary policy that decreases aggregate demand.

question

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

answer

The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption which will increase demand further and income further, etc.

question

According to the wealth effect, if the average price level rises, the value of consumers':

answer

Real wealth and consumption spending fall.

question

How will a recession in the economies of our foreign trading partners affect U.S. aggregate demand?

answer

U.S. aggregate demand will decrease.

question

The short run in macroeconomic analysis is a period:

answer

In which wages and some other prices do not respond to changes in economic conditions.

question

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

answer

The aggregate demand and the short-run aggregate supply curve.

question

In the short run, all prices are flexible.

answer

False.

question

Aggregate demand is the total value of real GDP that:

answer

All sectors of the economy are willing to purchase at various average price levels, all other things unchanged.

question

What are the four sources of aggregate demand?

answer

Consumption, private investment, government purchases, and net exports.

question

A change in the price level, all other things unchanged, causes:

answer

A movement along the aggregate demand curve.

question

Which of the following will not cause a change in aggregate demand?

answer

An increase in an economy's price level.

question

Suppose the economy is initially at point A. Now suppose that there is an increase in government purchases. In the short-run,

answer

The price level rises to Pb and real GDP increases to Yb.

question

What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?

answer

An increase in exports.

question

Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the short-run?

answer

Real GDP decreases to Y3 and the price level falls to P3.

question

Using the aggregate demand-aggregate supply model, predict what happens in the short run when there is a general decrease in raw materials cost.

answer

The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.

question

Suppose the U.S. is in a recession while foreign countries that trade with the U.S. are not. How will this affect the U.S.?

answer

U.S. imports will FALL, U.S. exports will RISE and U.S. aggregate demand will RISE.

question

All other things unchanged, an increase in government spending will:

answer

Shift the aggregate demand curve to the right.

question

What do economists mean by the term "sticky wage"?

answer

It refers to a wage that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus in the labor market.

question

Public policy to eliminate a recessionary gap could involve an increase in taxes.

answer

False.

question

Federal Reserve policies meant to influence the level of economic activity is called:

answer

Monetary policy.

question

The government expenditure multiplier is given by:

answer

The change in real GDP divided by the change in government expenditure.

question

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve?

answer

The aggregate supply curve will shift to the right.

question

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

answer

True.

question

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government lowers the capital gains tax to stimulate investment.

answer

The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.

question

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and real GDP in the short run?

answer

A sharp fall in stock market prices.

question

A change in the aggregate quantities of goods and services demanded at each price level is called a:

answer

Change in aggregate demand.

question

An economic analysis of the short run is useful to explain:

answer

How deviations of real GDP from potential output can and do occur.

question

The rise and fall of real GDP over the course of the business cycle suggests that:

answer

The economy may not always be in long-run equilibrium.

question

Suppose the economy is initially in short-run equilibrium at B. A shift from AD1 to AD2 could have been caused by all of the following except:

answer

An increase in the price level from Pa to Pb.

question

The short-run aggregate supply shows the amount of real GDP that will be:

answer

Made available at various price levels.

question

The recent 'great' recession, like the great depression was, in the simplest terms, caused by:

answer

A decline in aggregate demand.

question

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

answer

A sharp fall in stock market prices.

question

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

answer

The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.

question

The aggregate demand curve shifts due to changes in consumption expenditures, investment expenditures, government purchases, or net exports.

answer

True.

question

All other things unchanged, an increase in personal income tax rates will:

answer

Shift the aggregate demand curve to the left.

question

All other things unchanged, a higher exchange rate:

answer

Reduces net exports and aggregate demand.

question

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

answer

The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.

question

Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the short run?

answer

Real GDP increases to Y2 and the price level rises to P2.

question

Suppose that government spending on defense rises by $50 billion. What happens to the aggregate demand curve?

answer

It shifts right by more than $50 billion at each price level.

question

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

answer

The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.

question

Aggregate demand is defined as:

answer

The relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged.

question

All other things unchanged, an increase in exports relative to imports will:

answer

Shift the aggregate demand curve to the right.

question

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

answer

The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis.

question

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

answer

True.

HW 3 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards