Econ 8 – Flashcards
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(Advanced Analysis) Suppose that the equation for aggregate supply in an economy is P=125+0(Q), where P is the price level and Q is real GDP. Also, suppose that the MPC is 0.9 and the initial level of real GDP is $400 billion. After an increase in investment of $20 billion, real GDP and the price level will be:
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$600 billion and 125
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The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:
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increase U.S. imports and decrease U.S. exports.
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An increase in business excise taxes will shift the aggregate supply curve leftward.
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True
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Other things equal, an outward shift of the production possibilities curve can be expected to:
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shift the aggregate supply curve rightward.
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Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:
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supply curve will shift rightward.
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The fear of unwanted price wars may explain why many firms are reluctant to
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reduce prices when a decline in aggregate demand occurs.
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When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:
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not be possible due to the minimum wage law.
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All else equal, an increase in imports will shift the aggregate expenditures curve:
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downward and the aggregate demand curve leftward.
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Other things equal, an improvement in productivity will:
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shift the aggregate supply curve to the right
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Suppose the price level increases, but real output is unchanged. We can infer that
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aggregate demand has increased in the vertical range of the aggregate supply curve
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Which one of the following would not shift the aggregate demand curve?
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a change in the price level
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The equilibrium price level and level of real output occur where:
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the aggregate demand and supply curves intersect.
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A decrease in per unit production costs will shift the aggregate supply curve leftward.
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False
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In deriving the aggregate demand curve from the aggregate expenditures model we note that:
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an increase (decrease) in the price level shifts the aggregate expenditures schedule downward (upward).
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The aggregate demand curve is:
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downsloping because of the interest-rate, real-balances, and foreign purchases effects.
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If aggregate demand increases and, as a result, real output and employment increase but the price level remains unchanged, we can assume that:
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aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve
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