5 Written questions
5 Matching questions
- efficiency wages
- menu costs
- aggregate demand
- a 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.
- b The BLANK BLANK curve shows the level of real output that the economy demands at each price level.
- c 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.
- 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 A wage that minimizes wage costs per unit of output by encouraging greater effort or reducing turnover.
5 Multiple choice questions
- 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.
- 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.
- The determinants of aggregate supply are BLANK BLANKS, BLANK, and the BLANK-BLANK environment. A change in any one of these factors will change per-unit production costs at each level of output and therefore will shift the aggregate supply curve.
- The tendency for increases in the price level to increase the demand for money, raise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases).
- 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.
5 True/False questions
cost-push → 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.
aggregate supply → The BLANK BLANK curve shows the level of real output that the economy demands at each price level.
downsloping → Leftward shifts of the aggregate supply curve reflect increases in per-unit production costs and cause BLANK-BLANK inflation, with accompanying negative GDP gaps.
determinants of aggregate demand → Factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve.
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.