5 Written Questions
5 Matching Questions
- aggregate demand
- foreign purchases effect
- consumers, government, multiplier
- a The BLANK BLANK curve shows the level of real output that the economy demands at each price level.
- b 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.
- c 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.
- d The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.
- e Leftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.
5 Multiple Choice Questions
- The aggregate demand curve is BLANKING because of the real-balances effect, the interest-rate effect, and the foreign purchases effect. The real-balances effect indicates that inflation reduces the real value or purchasing power of fixed-value financial assets held by households, causing cutbacks in consumer spending. The interest-rate effect means that, with a specific supply of money, a higher price level increases the demand for money, thereby raising the interest rate and reducing investment purchases. The foreign purchases effect suggests that an increase in one country's price level relative to the price levels in other countries reduces the net export component of that nation's aggregate demand.
- 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.
- 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.
- Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.
- 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.
5 True/False Questions
efficiency wages → A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.
equilibrium price level → 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.
equilibrium → 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.
immediate-short-run → 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.
productivity → Leftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.