Econ-201 Aggregate Demand And Supply

Front 1

The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate:

Back 1

natural rate of output

Front 2

What effect would a new law that requires the government to cover the full cost of medicines for the elderly have on the model of aggregate demand and aggregate supply?

Back 2

It would cause the aggregate demand curve to shift to the right.




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Front 3

A period of declining real incomes and rising unemployment:

Back 3

recession

Front 4

Suppose the economy is in long run equilibrium. If aggregate demand increases, we can expect that in the short run output will ________, and in the long run output will ________.

Back 4

increase, decrease

Front 5

A curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level:

Back 5

aggregate-demand curve

Front 6

Suppose that the prices of inputs (such as wages or oil prices) increase. What effect would this have on the model of aggregate demand and aggregate supply?

Back 6

It would cause the short run aggregate supply curve to shift to the left, but it would have no effect over the long run aggregate supply.




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Front 7

A period of falling output and rising prices:

Back 7

stagflation

Front 8

The model that most economists use to explain short-run fluctuations in economic activity around its long-run trend:

Back 8

model of aggregate demand and aggregate supply

Front 9

Whenever the economy is in recession, we can expect ________ to decrease.

Back 9

investment

Front 10

Suppose the economy is in long run equilibrium. If the stock market crashes, we can expect the price level to ________, and output to ________

Back 10

decrease, decrease

Front 11

A severe recession:

Back 11

depression

Front 12

The long run aggregate supply curve is ________, because in the long-run, nominal variables, such as the price level, ________ affect real variables, such as the production of goods and services in the economy.

Back 12

vertical, do not

Front 13

Suppose the economy is in long run equilibrium. If the price of oil increases substantially, we can expect the price level to ________, and output to ________

Back 13

increase, decrease

Front 14

When will the long run aggregate supply curve shift to the right?

Back 14

Whenever the factors of production (such as labor and capital) increase.

Front 15

What effect will there be on the model of aggregate demand and aggregate supply and demand if the minimum wage increases?

Back 15

Aggregate supply shifts left, the price level rises, and real output falls.




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Front 16

What effect would an increase in the productivity of the labor force have on the model of aggregate demand and aggregate supply and demand?

Back 16

It would cause an increase (shift to the right) in a nation's long-run aggregate supply curve.




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Front 17

The increase in the wealth of households and businesses resulting from the increased value of money as the price level declines:

Back 17

The wealth effect

Front 18

What characteristics did business cycles in the U.S. during the 20th century have?

Back 18

They have not been consistent in either duration or severity.

Front 19

Suppose the European economy emerges from a recession. What will happen in the short run?

Back 19

Aggregate demand shifts right, the price level rises, and real output rises.




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Front 20

Economists use the phrase "business cycle" when referring to:

Back 20

The pattern of fluctuations in economic activity.

Front 21

What will lead to an increase in net exports to foreigners?

Back 21

A DECREASE in the price level.

Front 22

A fall in prices makes consumers feel more wealthy. What will happen as a result?

Back 22

There will be a movement down a given aggregate demand curve.

Front 23

What effect will a change in price expectations have on the model of aggregate demand and aggregate supply and demand?

Back 23

It will shift short-run aggregate supply, but not long-run aggregate supply.

Front 24

Supose the economy is producing at its natural rate of output. Consumers and businesses become more pessimistic about the economic outlook. As a result, in the short run:

Back 24

Output will fall below its natural rate.

Front 25

The aggregate supply curve shows the relationship between:

Back 25

The price level and the various quantities producers will supply.

Front 26

Suppose Congress enacts a tax increase in order to decrease budget deficits. What will happen in the short run?

Back 26

Aggregate demand shifts left, the price level falls, and real output falls.




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Front 27

In the long run, equilibrium output in the economy must equal:

Back 27

The economy's long-run capacity.

Front 28

Suppose the economy is in a short-run equilibrium and is producing output below its natural rate. Over the long run, when will output return to its natural rate?

Back 28

When short-run aggregate supply increases.

Front 29

Suppose there is a broad increase in the price of stocks which causes an increase in the real wealth of individuals. Consumption spending rises in response to the increase in wealth. What will this cause?

Back 29

It will cause the rate of unemployment to decrease.

Front 30

The aggregate demand for goods and services is composed of the purchases of:

Back 30

households, businesses, governments, and net exports

Front 31

Most ______ ______ fluctuate together.

Back 31

macroeconomic quantities

Front 32

The aggregate demand curve indicates the relationship between:

Back 32

The quantity demanded of all goods and services in the economy and the price level.

Front 33

Which one of the following is most likely to reduce short-run aggregate supply?

a. regulatory action that generates more benefits than costs
b. a technological advance that reduces the cost of energy
c. a higher than expected price level
d. an increase in the nation's net investment rate

Back 33

c. a higher than expected price level

Front 34

What 3 things occur during a recession?

Back 34

a)an increase in unemployment

b)a decrease in real output

c)a decrease in real income

Front 35

What does a vertical long-run aggregate supply curve indicate?

Back 35

It indicates that an increase in the price level will not expand an economy's output in the long run.

Front 36

During the 1970s, the real price of crude oil increased sharply on the world market. How did such an unanticipated rise in oil prices influence the price level and real output of oil-importing nations such as the U.S.?

Back 36

Real output fell and the price level rose.

Front 37

Why does the aggregate demand curve slope downward to the right?

Back 37

Because as the price level declines, the real value of money increases and thus stimulates expenditures.

Front 38

An improvement in technology would shift which curves?

Back 38

It would shift the short-run and long-run aggregate supply curves.




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Front 39

Why do most economists believe that the long-run aggregate supply curve is vertical?

Back 39

Because in the long run, output depends on resources and the available production technology, not the price level.

Front 40

Which of the following will lead to a reduction in aggregate demand in the United States?

a. a higher price level
b. rapid growth of real income in Japan and Western Europe
c. an increase in consumer confidence
d. an increase in real interest rates

Back 40

d. an increase in real interest rates

Front 41

Which of the following is most likely to cause an increase (shift to the right) in the long-run aggregate supply curve?

a. an increase in the size of the national debt
b. an increase in marginal tax rates
c. an increase in the economy's rate of capital formation
d. a new regulation that increases the cost of producing computers

Back 41

c. an increase in the economy's rate of capital formation

Front 42

Which of the following is most likely to cause an increase in short-run aggregate supply in the goods and services market?

a. a decline in the productivity of labor
b. an increase in expected prices
c. a reduction in resource prices
d. an increase in the price level

Back 42

c. a reduction in resource prices

Front 43

What effect would a decrease in investment tax credits have on the nation's aggregate demand curve?

Back 43

It would shift the aggregate demand curve left.





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Front 44

What is most likely to increase long-run aggregate supply?

Back 44

An advance in technology.

Front 45

An increase in the price level is accompanied by an increase in the interest rate. As a result, firms spend less on capital equipment. This is an example of the:

Back 45

interest-rate effect

Front 46

Starting with initial long-run equilibrium, a sudden increase in optimism about future business conditions will cause (in the short run):

Back 46

An increase in both output and the price level.




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Front 47

Which of the following will cause the aggregate demand curve to slope downward to the right as the price level declines?

a. an increase in exports
b. a decrease in the real wealth of people holding money balances
c. an increase in real interest rates
d. an increase in resource prices

Back 47

a. an increase in exports

Front 48

In the short run, the aggregate supply curve slopes ______, but in the long run it is ______.

Back 48

SHORT RUN: upward to the right

LONG RUN: vertical

Front 49

Suppose a decline in productivity causes short-run aggregate supply to decrease. What would the economy experience?

Back 49

stagflation

Front 50

Suppose the economy is at a short-run equilibrium where it is producing above the natural rate of output. What will happen over the long run?

Back 50

Price expectations will rise, shifting the short-run aggregate supply curve to the left and returning the economy to its natural rate of output.




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Front 51

What is most likely the initial impact of an increase in aggregate demand?

Back 51

A decrease in the unemployment rate.

Front 52

What will happen if a broad increase in the price of stocks causes an increase in the real wealth of individuals?

Back 52

The aggregate demand curve will shift to the right.

Front 53

For an oil importing country such as the United States, the immediate effect of an increase in the price of imported oil would tend to be:

Back 53

A decrease in real output and employment, and an increase in the price level.

Front 54

During a recession, _____ rises while _____ and _____ fall.

Back 54

unemployment, real income, real output

Front 55

Suppose output currently exceeds the natural rate of output. What will happen as the economy adjusts to a new long-run equilibrium position?

Back 55

There will be an increase in the price level.

Front 56

What has happened with the performance of the U.S. economy since the 1960s?

Back 56

The levels of employment, production, and growth have fluctuated.

Front 57

What does a vertical long-run aggregate supply curve indicate?

Back 57

Indicates that an increase in the price level will NOT expand an economy's output in the long run.

Front 58

Which of the following would shift the nation's short-run aggregate supply curve leftward?

a. an increase in wages.
b. an increase in productivity.
c. a decrease in consumer spending.
d. a decrease in net exports.

Back 58

a. an increase in wages.

Front 59

Economists use the phrase "business cycle" when referring to the pattern of fluctuations in:

Back 59

The economy

Front 60

On average over the past 50 years, production in the U.S. economy has grown about how much per year?

Back 60

3 percent per year.

Front 61

How are the average level of prices in the economy measured?

Back 61

They are measured by the CPI or the GDP deflator.

Front 62

What do most economists believe describes the world's economic fluctuations in the long run?

Back 62

The classical theory

Front 63

Shifts in the aggregate demand curve might arise from changes in what 4 things?

Back 63

1) Consumption
2) Investment
3) Government Purchases
4) Net Exports

Front 64

What does real GDP measure in an economy?

Back 64

The economy’s output of goods and services.

Front 65

Most economists believe that classical theory describes the world in the _____ but not in the _____.

Back 65

long run, short run

Front 66

Short-run economic fluctuations in the economy:

Back 66

The business cycle

Front 67

Shifts in the aggregate supply curve might arise from changes in what 4 things?

Back 67

1) Labor
2) Capital
3) Natural Resources
4) Technological Knowledge

Front 68

What are the 3 key facts about economic fluctuations?

Back 68

1) Economic fluctuations are irregular and unpredictable.
2) Most macroeconomic variables fluctuate together.
3) As output falls, unemployment rises.

Front 69

What measures the economy’s output of goods and services?

Back 69

Real GDP

Front 70

What would happen if the quantity of money in the economy were to double? What would remain constant?

Back 70

PRICES and INCOMES would double.

REAL VARIABLES would remain constant.

Front 71

What 3 things cause the aggregate demand curve to slope downward?

Back 71

1) The Wealth Effect

2) The Interest Rate Effect

3) The Exchange-Rate Effect

Front 72

When is the aggregate-supply curve is upward sloping?

Back 72

In the short run.

Front 73

Changes in the money supply affect _____ but NOT _____ in the long run.

Back 73

nominal variables, real variables

Front 74

What does the CPI and the GDP deflator measure in an economy?

Back 74

They measure the average level of prices.

Front 75

What are the 2 most important forces that govern the economy in the long run?

Back 75

1) technology

2) monetary policy

Front 76

In what to ways should policymakers respond to a recession?

Back 76

1) Do nothing and wait for prices and wages to adjust.
2) Take action to increase aggregate demand by using monetary & fiscal policy.

Front 77

In the long run, shifts in aggregate demand affect ____ but do not affect ____.

Back 77

the overall price level, output