Quiz9

Question 1

From the list​ below, match the letter of the outcome each of the following events produces upon the LRAS curve.
A.Shifts to right
B.Shifts to left
C.Movement up along
D.Movement down along

1. Last​ year, businesses invested in new capital​ equipment, so this year the​ nation’s capital stock is higher than it was last year.
2. There has been an 8 percent increase in the quantity of money in circulation that has shifted the AD curve.
3. A hurricane of unprecedented strength has damaged oil​ rigs, factories, and ports all along the​ nation’s coast.
4. Inflation has occurred during the past year as a result of rightward shifts of the AD curve.

Answer 1

1. A) Shifts to right
2. C) Movement up along
3. B) Shifts to left
4. C) Movement up along

Question 2

The​ long-run aggregate supply curve is determined by

Answer 2

The full-employment level of real output

Question 3

The​ long-run aggregate supply curve shifts outward when

Answer 3

there is economic growth.

Question 4

The ​long-run aggregate supply​ curve, ​LRAS, is a _________line determined by amounts of available resources such as labor and capital and by technology and resource productivity. The position of the LRAS gives the​ full-information and​ full-adjustment level of real GDP per year.

Answer 4

Vertical

Question 5

The _________rate of unemployment occurs at the​ long-run level of real GDP per year given by the position of the LRAS.

Answer 5

Natural

Question 6

If labor or capital increases from year to year or if the productivity of either of these resources rises from one year to the​ next, the LRAS shifts __________ In a growing​ economy, therefore, real GDP per year gradually ____________ over time.

Answer 6

Rightward

Increases

Question 7

From the list​ below, match the letter of the outcome each of the following events produces upon the AD curve
A. Shifts to right
B. Shifts to left
C. Movement up along
D. Movement down along

1. Deflation has occurred during the past year.
2. Real GDP levels of all the​ nation’s major trading partners have declined.
3. There has been a decline in the foreign exchange value of the​ nation’s currency.
4. The price level has increased this year.

Answer 7

1. D) Movement down along
2. B) Shifts to the left
3. A) Shifts to the right
4. C) Movement up along

Question 8

Total expenditures for domestically produced goods and services consist of

Answer 8

Consumer spending, business spending, government spending, and net foreign spending

Question 9

The total of all planned real expenditures in the economy is

Answer 9

aggregate demand

Question 10

The aggregate demand curve slopes downward because of the

Answer 10

​real-balance, interest rate and open economy effects

Question 11

According to the​ real-balance effect, an increase in the price level

Answer 11

reduces an​ individual’s expenditures due to a decrease in the real value of cash balances.

Question 12

According to the interest rate​ effect, an increase in the price level

Answer 12

• reduces borrowing and spending
• increases nominal interest rates
• reduces the aggregate quantity of goods and services demanded

Question 13

Which of the following will generate an increase in aggregate​ demand?

Answer 13

Government spending for the onset of a war.

Question 14

The U.S. aggregate demand curve would shift to the left if

Answer 14

the Federal Reserve Board caused the real interest rate to increase

Question 15

All of the following would cause the aggregate demand curve to shift except

Answer 15

Price level changes

Question 16

Aggregate demand is the total of all planned _____ in the economy, and aggregate supply is the total of all planned ______ in the economy.

Answer 16

Expenditure

Production

Question 17

The aggregate demand curve shows the various qualities of total planned ____ on final goods and services at various price levels; it is downward sloping.

Answer 17

Spending

Question 18

There are three reasons why the aggregate demand curve is downward sloping. They are the ____ effect, the_____ effect, and the ______ effect.

Answer 18

Real balance

Interest rate

Open-economy

Question 19

The ____ effect occurs because price level changes alter the real value of cash​ balances, thereby causing people to desire to spend more or​ less, depending on whether the price level decreases or increases.

Answer 19

Real balance

Question 20

The ____ effect is caused by interest rate changes that mimic price level changes. At higher interest​ rates, people seek to buy ____ houses and cars, and at lower interest rates, they seek to buy _____.

Answer 20

Interest rate

Fewer

More

Question 21

The open economy effect occurs because of a shift away from expenditures on _____ goods and a shift toward expenditures on ____ goods when the domestic price level increases.

Answer 21

Domestic

Foreign

Question 22

Suppose that the​ long-run aggregate supply curve is positioned at a real GDP level of ​$15 trillion in base year​ dollars, and the​ long-run equilibrium price level​ (in index number​ form) is 108.

The corresponding full employment level of nominal GDP must be ​$______trillion dollars ​

Answer 22

$16.2 Trillion dollars

Question 23

Suppose that the position of a​ nation’s long-run aggregate supply​ (LRAS) curve has not​ changed, but its​ long-run equilibrium price level has increased.

Factors:
a. A rise in the value of the domestic currency relative to
other world currencies
b. An increase in the quantity of money in circulation
c. An increase in the labor force participation rate
d. Upper A decrease in taxes
e. A rise in real incomes of countries that are key trading
partners of this nation
f. Increased​ long-run economic growth

-Of the factors given​ above, which could account for the price level increase with constant​ LRAS?

Answer 23

Factors:

B: An increase in the quantity of money in circulation

D: A decrease in taxes

E: A rise in real incomes of countries that are key trading partners of this nation

Question 24

Identify the combined shifts in​ long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP and increase in the equilibrium price level.

Answer 24

Long-run aggregate supply schedule​ (LRAS) shifts to the right and aggregate demand schedule​ (AD) shifts to the right by a larger amount.

Question 25

Identify the combined shifts in​ long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of a decrease in equilibrium real GDP with no change in the equilibrium price level.

Answer 25

Long-run aggregate supply schedule​ (LRAS) shifts to the left and aggregate demand schedule​ (AD) shifts to the left by an equal amount.

Question 26

Identify the combined shifts in​ long-run aggregate supply and aggregate demand that could unambiguously explain the simultaneous occurrences of an increase in equilibrium real GDP with no change in the equilibrium price level.

Answer 26

Long-run aggregate supply schedule​ (LRAS) shifts to the right and aggregate demand schedule​ (AD) shifts to the right by an equal amount.

Question 27

Suppose that during the past 3​ years, equilibrium real GDP in a country rose​ steadily, from ​$451 billion to ​$511 ​billion, but even though the position of its aggregate demand curve remained​ unchanged, its equilibrium price level steadily​ declined, from 112 to 107. What could have accounted for these​ outcomes, and what is the term for the change in the price level experienced by this​ country?

Answer 27

Economic growth without an increase in aggregate​ demand; secular deflation

Question 28

Assume that the position of a​ nation’s aggregate demand curve has not​ changed, but the​ long-run equilibrium price level has risen.  Now consider the following​ factors:

Factors:

a. A decrease in labor productivity
b. A decrease in the capital stock
c. An increase in the quantity of money in circulation
d. The depletion of existing mineral resources used to
produce various goods
e. A technological improvement

Other things being​ equal, which of these factors might account for this​ event?

Answer 28

Factors:

A: A decrease in labor productivity

B: A decrease in the capital stock

D: The depletion of existing mineral resources used to produce various goods

Question 29

In Ciudad​ Barrios, El​ Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for​ business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these​ institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new stereos or televisions. Similar scenes occur throughout the developing​ world, as each year migrants working in​ higher-income, developed nations send around​ $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the​ relatives, such as those in Ciudad​ Barrios, typically spend nearly all of the funds on current consumption.

Based on the above​ information, developing​ countries’ income inflows transmitted by migrant workers are primarily affecting their​ economies’ long-run aggregate ___________curves.

The equilibrium price levels in nations that are recipients of large inflows of funds from migrants will likely

Answer 29

Demand

rise because there is an increase in the aggregate demand in these countries.

Question 30

In the long​ run, persistent deflation in a growing economy can occur if

Answer 30

increases in AD are proportionately larger than the increase in LRAS.

Question 31

An increase in the LRAS curve that is larger proportionately than an increase in the AD curve will lead to

Answer 31

a decrease in the price level and an increase in output.

Question 32

Inflation can be caused by

Answer 32

decreases in the​ long-run aggregate supply curve or increases in the aggregate demand curve.

Question 33

Supply-side inflation can be caused by a continual

Answer 33

decrease in aggregate supply while aggregate demand remains unchanged.