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If the aggregate demand curve shifts in the short run moving the economy out of long-run equilibrium

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the short run-run aggregate supply curve will shift to bring it back into long-run equilibrium

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In macroeconomy, demand-side shifts change:

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only the price level in the long run, while output eventually returns to its long-run potential level

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The effect of a shift in the aggregate demand curve due to an increase in consumer confidence will be:

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an increase in both prices and output in the short run

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An increase in the costs of production will cause the

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short-run aggregate supply curve to shift to the left

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when the economy produces less than its potential output, it is:

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called a recession, not in long-run equilibrium, and producing a quantity less than the long-run aggregate supply quantity

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Something that would cause the long-run aggregate supply curve to shift to the right would be

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the discovery of a new oil reserve

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the long-run aggregate supply curve is:

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vertical

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In the long run, if the prices of goods and services are higher than before:

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the aggregate quantity supplied will not change

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In macroeconomics, the long run refers to:

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how long it takes for prices of inputs of fully adjust to changes in economic conditions

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Sticky wages occur because

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employers must wait until the current contract ends to cut pay, unions often negotiate wages for several years in advance.

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the phrase "sticky prices" refers to

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the prices of some inputs taking longer to adjust to the price level than the output it creates

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the slope of the short-run aggregate supply curve shows that:

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as overall price levels increase, firms are willing to produce more

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In the short run, the aggregate supply curve

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slopes upward

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The aggregate supply curve shows the relationship between

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the overall price level in the economy and total production by firms

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If the government were to increase income taxes, we would predict

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a shift in aggregate demand to the left

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A decrease in consumer confidence will cause

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a shift in aggregate demand to the left

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when the U.S. price level decreases, we would expect

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a movement down along the aggregate demand curve

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If the prices increase only in the United States, then:

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U.S. goods become relatively more expensive than goods from other countries

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As prices rise, people

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feel less wealthy, want to spend less, and demand a smaller quantity of goods and services in the aggregate.

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A rise in the overall price level means that

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A given number of dollars wont buy as much in terms of real goods and services

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In general, changes in the price level will change:

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the real value of people's wealth and income

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which of the following is a component of aggregate demand

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Net exports

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The aggregate demand curve

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Shows relationship between the overall price level, slopes downward

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The aggregate supply and aggregate demand model describes the interaction of which macroeconomic variables

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Output and price level

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a situation in which output decreases while prices increase is often referred to as:

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Stagflation

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If a hurricane were to wipe out the majority of the eastern seaboard in the U.S., it would likely cause a

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long-run supply shock

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falling output, in the short run, could be due to:

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a reduction in aggregate demand

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One way the government can boost the economy out of a recession is

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by increasing government spending

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If the economy is in a recession, it means that

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the economy is not in the long-run equilibrium, total output is less than potential output, and the short-run equilibrium is to the left of the long-run aggregate supply curve

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If the economy is in a recession, and the government increases its spending to bring the economy back to its long-run equilibrium, the long-run level of output will

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return with higher prices

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if the government does not react to a recession

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the economy will recover, but much more slower

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Fiscal policy is

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government decisions about the level of taxation and public spending

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If the government decreases the income tac rate, they assume it will affect which component of GDP

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Consumer (c)

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If the government enacts contractionary fiscal policy, it:

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Must want to slow economic activity, could increase taxes, and expects aggregate demand to decrease

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one of the main difficulties with implementing fiscal policy is

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the time lag between the time the policy is chosen and the time it gets enacted, deciding on a policy without all the relevant info, and danger in overshooting the goal of full employment

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Automatic stabilizers are the

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taxes and government spending that affect fiscal policy without specific action from policymakers

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During times of economic boom, the spending on unemployment insurance

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likely falls, since more people are working

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the multiplier effect occurs when

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spending by one person causes others to spend more too, increasing the impact of the initial spending on the economy

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the multiplier effect suggests that

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spending $1 increases GDP by more than $1

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In order to accurately capture the multiplier effect, it is important to know:

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what proportion of their income people spend

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The marginal propensity to consume

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is the household will spend 65 cents and save 35 cents.

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If the marginal propensity to consume was 0.75 it would mean that:

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$0.75 of an additional $1 of individuals' after-tax income is spent on consumption

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The government spending multiplier is calculated as:

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1/(1-MPC)

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If the marginal propensity to consumer is 0.8, the government spending multiplier must be

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5

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If the government increased its spending by $100, and the GDP increased $400 as a result, the MPC must be:

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0.75

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If the MPC is 0.6, and the government spends an additional $50b, the overall affect on GDP will be

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an increase of $125b

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If the government wishes to increase GDP by $1,000b, and the MPC is 0.6, it should increase its spending by:

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$400b

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For any MPC, the taxation multiplier is:

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smaller in absolute value than the government spending multiplier

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In financial markets, sellers are people who

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have cash on hand and are willing to let others use it, for a price

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An example of a seller in in a financial market would be

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individual who have a savings account

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The market for loanable funds is a market in which

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savers supply funds to those who want to borrow for their investment spending needs

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The demand for loanable funds comes from

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investment

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Savings and investment are equal

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at the equilibrium in the market for loanable funds

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investment decisions are based on the trade-off between

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the potential profits that could be generated by an investment and the cost of borrowing money to finance that investment

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Crowding out is reduction in

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private borrowing that is caused by an increase in government borrowing

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When the government increases its demand for loanable funds, it causes

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the demand for loanable funds curve to shift to the right, which increases interest rates

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Money is

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the set of all assets that are regularly used to directly purchase goods and services

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one of the functions of money is to serve as a

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store of value, medium of exchange, and unit of account.

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the main reason barter is extremely inefficient is that

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it can have very high transactions costs associated with it, and people and firms have to spend a lot of time looking for mutually agreeable trades

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fiat money

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money created by rule

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Banks create money in the economy by

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loaning out part of each deposit, which will be redeposited by someone else

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