Lecture 8 Flashcards
The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly.
A) capacity; unit costs B) equilibrium output; average costs C) equilibrium output; unit costs D) profit-maximizing output; total costs E) equilibrium output; total costs
A) capacity; unit costs
Which of the following would likely cause a downward shift in the AE curve and a movement upward along the AD curve?
A) an increase in the price level B) a reduction in government purchases C) a decrease in the MPC D) a decrease in the price level E) a decrease in the business confidence of firms
A) an increase in the price level
Other things being equal, an exogenous rise in the domestic price level will
A) decrease desired real expenditure because it will affect the real value of wealth.
B) decrease desired real expenditure only if it is accompanied by a change in the current income of households.
C) have no effect on the level of desired real expenditure.
D) cause net exports to rise.
E) increase the level of desired real expenditure.
A) decrease desired real expenditure because it will affect the real value of wealth.
Refer to Figure 23-2. Which of the following events could cause the upward shift of the AS curve?
A) a massive drought that reduces agricultural output
B) improvements in communications technology
C) a recession in the U.S. that reduces our net exports
D) a decrease in business confidence that reduces desired investment
E) a major discovery of new oil reserves that will increase the world supply
A) a massive drought that reduces agricultural output
A leftward shift of the aggregate demand (AD) curve could result from a rise in
A) government purchases. B) the net tax rate. C) government transfer payments to households. D) desired investment. E) desired exports.
B) the net tax rate.
A leftward shift in the economy’s AS curve implies that
A) at any given price level, a higher level of output will be supplied.
B) there is an increase in aggregate supply.
C) there is a demand shock.
D) the same output will be produced in equilibrium, but at a lower price level.
E) at any given price level, a lower level of output will be supplied.
E) at any given price level, a lower level of output will be supplied.
All points on an economy’s AD curve
A) correspond to a particular point on industry demand curves for a particular product.
B) show the direct relationship between the price level and net exports.
C) show only changes in relative prices and quantities.
D) relate a particular price level to the total demand for output at that price level.
E) show the direct relationship between the price level and the demand for consumer goods.
D) relate a particular price level to the total demand for output at that price level.
Consider the economy’s aggregate supply curve. Other things being equal, unit costs will tend to fall if
A) wages fall.
B) wage increases are less than productivity increases.
C) wage and price controls are in effect.
D) the government increases payroll taxes.
E) there is a fall in the price of oil.
B) wage increases are less than productivity increases.
Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?
A) a decrease in the price level B) an increase in the price level C) a reduction in government purchases D) an increase in the business confidence of firms E) an decrease in the MPC
C) a reduction in government purchases
Consider the basic AD/AS model. If their unit costs rise as output increases, price-taking firms will be prepared to produce ________ only if ________.
A) more; prices increase B) their current output; prices increase C) more; prices decrease D) less; prices increase E) more; the economy is in equilibrium
A) more; prices increase
Consider a simple macro model with demand-determined output. An exogenous increase in the domestic price level will
A) shift the net export function downward and the AE curve upward.
B) pivot the net export function and the AE curve upward.
C) shift both the net export function and the AE curve upward.
D) shift both the net export function and the AE curve downward.
E) shift the net export function upward and the AE curve downward.
D) shift both the net export function and the AE curve downward.
Other things being equal, when the domestic price level falls exogenously,
A) the aggregate expenditure function shifts downward.
B) the net export function shifts upward.
C) Canadian goods become more expensive relative to foreign goods.
D) the net export function shifts downward.
E) imports of foreign goods rise.
B) the net export function shifts upward.
Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sector’s wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.
A) increase; a decrease; a downward B) increase; an increase; an upward C) increase; an increase; a downward D) reduce; a decrease; a downward E) reduce; an increase; an upward
D) reduce; a decrease; a downward
Suppose there is an exogenous increase in the domestic price level. Which of the individuals listed below would experience an increase in wealth?
A) a person with a government bond that promises to pay the holder $1000, 5 years hence
B) a person with deposits in a bank savings account
C) a person with cash under the mattress
D) a person with a 25-year home mortgage
E) a person with a corporate bond that promises to repay the face value of the bond in the future
D) a person with a 25-year home mortgage
Consider the basic AD/AS model. When wage rates rise faster than the increase in labour productivity, the
A) AS curve shifts downward. B) output gap increases. C) output gap falls. D) AS curve shifts upward. E) AD curve shifts left.
D) AS curve shifts upward
