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47 terms

macroeconomics

aggregate demand and supply
STUDY
PLAY
Suppose there is an increase in the quantity of capital. As a result, the SAS
and the LAS curves both shift rightward
What do open-market sales do to the price level and real GDP?
They decrease the price level and real GDP
What happens when the price level rises?
Interest rates fall, so firms increase investment
Other things being equal, as the price level rises exogenously, the aggregate expenditure (AE) function shifts
down and the economy will move upward to the left along the AD curve
Consider the basic AD/AS diagram. The vertical line at Y* shows the relationship between the price level and the amount of output ________ have adjusted to output gaps.
supplied by firms after all factor prices
if there is crowding out, which of the following might decrease as government expenditures increase?
demand for capital goods
According to liquidity preference theory, if the price level increases, how do the equilibrium interest rate and the aggregate quantity of goods change?
The interest rate rises and the quantity demanded falls
Consider the AD/AS model and suppose the economy begins at potential output. The effect of a negative AS shock on real GDP will be reversed in the long run with a ________ shift in ________
rightward; AS
Which of the following actions might we logically expect to result from rising stock prices?
Jim increases his consumption spending
Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sector's wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.
reduce; a decrease; a downward
Which of the following shifts the short-run, but not the long-run, aggregate supply right?
a decrease in the expected price level
Which of the following lists of events is consistent with the long-run and short-run economic theories studied?
In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level is stuck
what causes stagflation (shifts in AD or AS)
aggregate supply shifts left
The aggregate supply curve will shift as a result of a change in
the wage rate and technology
A decrease in government spending initially and primarily shifts which curve in what direction?
aggregate demand left
Consider the basic AD/AS macro model. The simple multiplier is reflected by the
size of the rightward shift of the AD curve in response to a change in autonomous expenditure
government purchase multiplier
1/(1 - MPC)
The economy is in long-run equilibrium. Suddenly, due to improved international relations and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time
The price level is higher and real GDP is the same
In the short run, an increase in the money supply causes interest rates and aggregate demand to do what?
It causes interest rates to decrease and aggregate demand to shift right
In a macro model with a constant price level, an increase in autonomous desired consumption will cause the AE curve to shift
upward and the AD curve to shift to the right
In a small open economy with perfect capital mobility, if the Bank of Canada chooses to fix the value of the Canadian dollar, what will a contractionary monetary policy do?
It will have no effect
If the Bank of Canada allows the exchange rate to vary freely, which of the following effects will an expansionary fiscal policy have?
It will have no permanent effect on either the position of the AD curve or the interest rate
The long-run aggregate supply curve is
vertical
When making a case against active stabilization policies, what do some economists argue?
Monetary policy should not be used to stabilize the economy
A rightward shift in the aggregate demand (AD) curvecould result from a rise in
desired investment
Marks: 1
Suppose the closed economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $40 billion. If the MPC equals 0.75 and the crowding-out effect is $160 billion, what would we expect to happen in the long-run to real GDP and the price level?
Real GDP would be higher, but the price level would be lower
what will shift SAS to the left?
an increase in the expected price level
A rise in the amount of desired investment expenditure at each level of national income
shifts the AD curve to the right
The wealth effect helps explain the downward slope of the aggregate demand curve. How important is this effect and why?
relatively unimportant in Canada because money holdings are a small part of consumer wealth
Which one, if any, of the following events shift the short-run aggregate supply curve but not the long-run aggregate supply curve?
A change in factor prices
If the economy is initially in long-run equilibrium, which of the following best describes the effects of a shift in aggregate demand?
Prices are affected in the long and short run, but output only in the short run
Marks: 1
Other things being equal, as the price level rises exogenously, the aggregate expenditure (AE) function shifts
down and the economy will move upward to the left along the AD curve
MPC (what would .75 mpc imply?)
marginal propensity to consume .75 mpc implies that ppl consume 75% of what they earn
multiplier equation
1/(1-mpc) (eg if moc is .75 the multiplier is 1/.25 or 4
net worth
A-L
reserve ratio
R/D
capital radio
Expenditure/Assets
leverage ratio
1/(1-captial ratio)
How does the interest rate change when the price level falls and when the money supply falls?
The interest rate falls when the price level falls and rises when the money supply falls
An important automatic fiscal stabilizer in Canada is
the income-tax system
Which of the following shifts the short-run, but not the long-run, aggregate supply right
a decrease in the expected price levelq
In the short run, the aggregate supply curve has a positive slope because, as the price level rises, producers can
be compensated for the extra costs incurred to produce more output
Which of the following policies would someone who wants the government to follow an active stabilization policy recommend when the economy is experiencing unemployment above the natural rate?
increasing government expenditures
Consider the basic AD/AS macro model. The simple multiplier is reflected by the
size of the rightward shift of the AD curve in response to a change in autonomous expenditure
We observe an increase in the price level and an increase in real GDP. Which of the following is a possible explanation?
An increase in expected future profits
In the long run, which of the following do changes in the money supply affect?
price level
not included in AD
purchases of stock and bonds