5 Written Questions
5 Matching Questions
- inflation, multiplier effect
- menu costs
- consumers, government, multiplier
- foreign purchases effect
- a 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.
- b The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.
- c 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.
- d 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.
- e 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.
5 Multiple Choice Questions
- Leftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.
- Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.
- 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.
- The price level at which the aggregate demand curve intersects the aggregate supply curve.
- A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.
5 True/False Questions
immediate-short-run → An aggregate supply curve for which real output, but not the price level, changes when the aggregate demand curves shifts; a horizontal aggregate supply curve that implies an inflexible price level.
aggregate demand → A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.
aggregate demand → 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.
recession, cyclical, inflexible → 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.
determinants of aggregate demand → Factors such as consumption spending, investment, government spending, and net exports that, if they change, shift the aggregate demand curve.