5 Written questions
4 Matching questions
- aggregate demand
- a The BLANK BLANK curve shows the level of real output that the economy demands at each price level.
- b The aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level.
- c 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.
- d A measure of average output or real output per unit of input. For example, the productivity of labor is determined by dividing real output by hours of work.
5 Multiple choice questions
- The BLANK BLANK curve shows the levels of real output that businesses will produce at various possible price levels. The slope of the aggregate supply curve depends upon the BLANKITY of input and output prices. Since these vary over time, aggregate supply curves are categorized into three time horizons, each having different underlying assumptions about the flexibility of input and output prices.
- 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.
- The macroeconomic model that uses aggregate demand and aggregate supply to determine and explain the price level and the real domestic output.
- Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.
- 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 True/False questions
aggregate supply → Rightward shifts of the BLANK BLANK curve, caused by large improvements in productivity, help explain the simultaneous achievement of full employment, economic growth, and price stability that occurred in the United States between 1996 and 2000. The recession of 2001, however, ended the expansionary phase of the business cycle. Expansion resumed in the 2002-2007 period, before giving way to the severe recession of 2007-2009.
simultaneous → 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.
equilibrium → The 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.
consumers, government, multiplier → The 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.
inflation, multiplier effect → 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.