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5 Written questions

5 Matching questions

  1. simultaneous
  2. determinants of aggregate demand
  3. recession, cyclical, inflexible
  4. equilibrium real output
  5. efficiency wages
  1. a A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.
  2. b Because the short-run aggregate supply curve is the only version of aggregate supply that can handle BLANK changes in the price level and real output, it serves well as the core aggregate supply curve for analyzing the business cycle and economic policy.
  3. c Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.
  4. d The gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (the real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve.
  5. e Shifts of the aggregate demand curve to the left of the full-employment output cause BLANK, negative GDP gaps, and BLANK unemployment. The price level may not fall during recessions because of downwardly BLANKABLE prices and wages. This results from fear of price wars, menu costs, wage contracts, efficiency wages, and minimum wages. When the price level is fixed, changes in aggregate demand produce full-strength multiplier effects.

5 Multiple choice questions

  1. Increases in aggregate demand to the right of the full-employment output cause BLANK and positive GDP gaps (actual GDP exceeds potential GDP). An upsloping aggregate supply curve weakens the BLANK BLANK of an increase in aggregate demand because a portion of the increase in aggregate demand is dissipated in inflation.
  2. The macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output.
  3. An aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level.
  4. The reluctance of firms to cut prices during recessions (that they think will be short-lived) because of the costs of altering and communicating their price reductions; named after the cost associated with printing new menus at restaurants.
  5. A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.

5 True/False questions

  1. equilibriumThe intersection of the aggregate demand and aggregate supply curves determines an economy's BLANK price level and real GDP. At the intersection, the quantity of real GDP demanded equals the quantity of real GDP supplied.


  2. input prices, productivity, legal-institutionalThe determinants of aggregate demand consist of spending by domestic BLANKS, by businesses, by BLANK, and by foreign buyers. The extent of the shift is determined by the size of the initial change in spending and the strength of the economy's BLANK.


  3. cost-pushLeftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.


  4. determinants of aggregate supplyFactors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.


  5. consumers, government, multiplierThe aggregate BLANK-aggregate BLANK model (AD-AS model) is a flexible-price model that enables analysis of simultaneous changes of real GDP and the price level.


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