Quiz9 Flashcards
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
- Last year, businesses invested in new capital equipment, so this year the nation’s capital stock is higher than it was last year.
- There has been an 8 percent increase in the quantity of money in circulation that has shifted the AD curve.
- A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation’s coast.
- Inflation has occurred during the past year as a result of rightward shifts of the AD curve.
- A) Shifts to right
- C) Movement up along
- B) Shifts to left
- C) Movement up along
The long-run aggregate supply curve is determined by
The full-employment level of real output
The long-run aggregate supply curve shifts outward when
there is economic growth.
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.
Vertical
The _________rate of unemployment occurs at the long-run level of real GDP per year given by the position of the LRAS.
Natural
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.
Rightward
Increases
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
- Deflation has occurred during the past year.
- Real GDP levels of all the nation’s major trading partners have declined.
- There has been a decline in the foreign exchange value of the nation’s currency.
- The price level has increased this year.
- D) Movement down along
- B) Shifts to the left
- A) Shifts to the right
- C) Movement up along
Total expenditures for domestically produced goods and services consist of
Consumer spending, business spending, government spending, and net foreign spending
The total of all planned real expenditures in the economy is
aggregate demand
The aggregate demand curve slopes downward because of the
real-balance, interest rate and open economy effects
According to the real-balance effect, an increase in the price level
reduces an individual’s expenditures due to a decrease in the real value of cash balances.
According to the interest rate effect, an increase in the price level
- reduces borrowing and spending
- increases nominal interest rates
- reduces the aggregate quantity of goods and services demanded
Which of the following will generate an increase in aggregate demand?
Government spending for the onset of a war.
The U.S. aggregate demand curve would shift to the left if
the Federal Reserve Board caused the real interest rate to increase
All of the following would cause the aggregate demand curve to shift except
Price level changes
Aggregate demand is the total of all planned _____ in the economy, and aggregate supply is the total of all planned ______ in the economy.
Expenditure
Production
The aggregate demand curve shows the various qualities of total planned ____ on final goods and services at various price levels; it is downward sloping.
Spending
There are three reasons why the aggregate demand curve is downward sloping. They are the ____ effect, the_____ effect, and the ______ effect.
Real balance
Interest rate
Open-economy
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.
Real balance
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 _____.
Interest rate
Fewer
More
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.
Domestic
Foreign
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
$16.2 Trillion dollars
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?
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
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.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by a larger amount.
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.
Long-run aggregate supply schedule (LRAS) shifts to the left and aggregate demand schedule (AD) shifts to the left by an equal amount.
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.
Long-run aggregate supply schedule (LRAS) shifts to the right and aggregate demand schedule (AD) shifts to the right by an equal amount.
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?
Economic growth without an increase in aggregate demand; secular deflation
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?
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
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
Demand
rise because there is an increase in the aggregate demand in these countries.
In the long run, persistent deflation in a growing economy can occur if
increases in AD are proportionately larger than the increase in LRAS.
An increase in the LRAS curve that is larger proportionately than an increase in the AD curve will lead to
a decrease in the price level and an increase in output.
Inflation can be caused by
decreases in the long-run aggregate supply curve or increases in the aggregate demand curve.
Supply-side inflation can be caused by a continual
decrease in aggregate supply while aggregate demand remains unchanged.
