Chapter 10

Question 0

Long – run aggregate supply curve

Answer 0

A vertical line representing the real output of goods and services after full adjustment has occurred. It can also be viewed as representing the real GDP of the economy under conditions of full employment – the full – employment level of real GDP

Question 1

Aggregate supply

Answer 1

The total of all planned production for the economy

Question 2

Base – year dollars

Answer 2

The value of a current some expressed in terms of prices in a base year

Question 3

Endowments

Answer 3

The various resources in an economy, including both physical resources and such human resources as ingenuity and management skills

Question 4

Aggregate demand

Answer 4

The total of all planned expenditures in the entire economy

Question 5

Aggregate demand curve

Answer 5

A curve showing planned purchase rates for all final goods and services in the economy at various price levels, all other things held constant

Question 6

Real – balance effect

Answer 6

The change in expenditures resulting from a change in the real value of money balances when the price value changes, all other things held constant; also called the wealthy effect

Question 7

Interest rate effect

Answer 7

One of the reasons that the aggregate demand curve slopes downward: higher price levels increase the interest rate, which in turn causes businesses and consumers to reduce desired spending due to the higher cost of borrowing

Question 8

Open economy effect

Answer 8

One of the reasons that the aggregate demand curve slopes downward: higher price levels results in foreign residents desiring to buy fewer US made goods, while US residents now desire more foreign – made goods, thereby reducing net exports. This is equivalent to reduction in the amount of real goods and services purchased in United States

Question 9

Secular deflation

Answer 9

A persistent decline in prices resulting from economic growth in the presence of stable aggregate demand