Upgrade to remove ads
Terms in this set (95)
Which of the statements best describes why the aggregate demand curve is downward sloping?
An increase in the aggregate price level causes consumer and investment spending to fall, because consumer purchasing power decreases and money demand increases
The interest rate effect
is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level
An increase in the price of goods in the short run will
increase producers' profit per unit
When the aggregate price level rises
there will be a movement along the SRAS curve.
A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the ____ curve to the ______.
supply; short run aggregate supply; left
Which factor would shift the aggregate demand curve to the LEFT?
monetary policy that raises the interest rate
The AD curve will shift to the left
if household wealth decreases
Changes in aggregate demand can be caused by changes in
the stock of physical capital
Changes in ______ will not shift the aggregate demand curve
the price level
Nominal wages are sticky because
wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is significant
The short run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.
higher; higher output, since most production costs are fixed in the short run
The nominal wage is the dollar amount of wage paid
The short run in macroeconomic analysis is a period
in which many production costs can be taken as fixed
The short run aggregate supply curve illustrates
the positive relationship between the aggregate price level and aggregate output supplied.
Potential output is the level of real GDP that
the economy would produce if all prices, including nominal wages, were fully flexible.
The long run level of output is known as _____ output
The long run supply curve illustrates how the aggregate output supplied is _____ the aggregate price level
US government decides to increase the federal tax rate by 4% for all earners
aggregate demand decreases
A manufacturing boom during the late 1990s has created an oversupply of tractors, a necessary implement in agricultural production
aggregate demand decreases
The newest release of the Consumer Confidence Index shows a steady increase in consumer confidence about the economy
aggregate demand increases
The Federal Reserve, in charge of regulating banking and monetary policy, decides to increase amount of money available in economy
aggregate demand increases
Changes in healthcare market cause employers to pay significantly more for health insurance they provide employees
short run aggregate supply decreases
The production of a new type of blade for their combine harvesters has allowed wheat farmers to increase productivity by 40%
short run aggregate supply increases
The price of lumber, a commodity, rises drastically
short run aggregate supply decreases
How do nominal wage changes affect the economy's output at the long run equilibrium
nominal wages have no impact on output in the long run
Increased productivity; in the long run the aggregate price level ____ and real GDP _____
Positive demand shocks
positive shift that leads to a higher aggregate price, AD curve shifts to the right
Negative demand shocks
negative shift that leads to a lower aggregate price, AD curve shifts to the left
Positive supply shock
positive shift that leads to a lower aggregate price, SRAS curve shifts to the right
Negative supply shocks
negative shift that leads to a higher aggregate price, SRAS curve shifts to the left, stagflation
As an inflationary gap self-corrects, the equilibrium price level ____ and the equilibrium real output ____.
If there is an inflationary gap, nominal wages ____, and the ____ curve shifts ____ until the economy reaches long run equilibrium
rise; short run aggregate supply; left
In the long run, as the economy self-corrects, a decrease in aggregate demand , all other things unchanged will cause the price level to _____ and potential output to _____.
fall; remain stable
Inflationary and recessionary gaps are closed by self correcting adjustments that shift
the SRAS curve
Potential real GDP is 10,000 and current level of real GDP is 9,000. The output gap is
An advantage of stabilizing macroeconomic policy over economic self correction is that
economic self correction can take a decade or more
Fiscal policy is conducted by _____ and involves _____.
the federal government; government spending and taxes
Which fiscal policy would make a budget surplus larger or a budget deficit smaller?
lower government transfers
The government budget balance equals taxes _____ purchases ______ transfers.
If the government decreases taxes, disposable income ____. This causes total consumer spending to ____.
What eliminates inflationary gaps?
an increase in taxes
As the marginal propensity to consume increases, the multiplier
As the marginal propensity to save increases, the multiplier
An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in
a smaller eventual effect on real GDP
The decision to build more aircraft carriers to keep employment high is an example of
expansionary fiscal policy
Examples of fiscal policy do NOT include:
reducing the money supply to raise the interest rate
President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of
contractionary fiscal policy
Decreasing funding for space exploration will shift the ____ curve to the ______.
aggregate demand; left
Shift of the aggregate demand curve to the left can be caused by
higher tax rates
Discretionary spending examples
legislators increase the generosity of unemployment benefits; a law is enacted that increases government spending on health care programs
Automatic stabilizer examples
economic growth increases personal and corporate income, increasing tax payments; a recessions increases the number of recipients of unemployment benefits
How do automatic stabilizers impact tax revenue and government spending during a recession? Tax revenue will ____ and government spending will _____.
When budget balance is negative, government is running a
Why are persistent budget deficits worrisome?
Deficits can lead to private investment being crowded out; debt places an increased burden on the economy in the future; the likelihood of default increases
In macroeconomic context, what are implicit liabilities?
money that the government has promised to pay in the future
What is a significant implicit liability in the United States?
The inclusion of a tax rate in the model results in a new multiplier that is
smaller than the original multiplier
fresh fish is not an effective form of money. what essential characteristic of money does fresh fish lack that most makes it ineffective
store of value
cattle is not an effective form of money. what essential characteristic of money does cattle lack that most makes it ineffective?
medium of exchange
What is true about bank runs?
since Great Depression gvt has set up regulation that has eliminated most bank runs, fears leading to bank runs can be self fulfilling, there was a wave of bank runs during the Great Depression and deposit insurance is designed to reduce the risl of bank runs for depository banks
Increasing the reserve ration will ________ the money multipler
What is included in M!?
traveler's checks, checkable bank deposits, currency
Suppose you transfer $500 from your checking account to your savings account. With this transaction, M1 _____ and M2_____.
decreases; stays the same
The functions of money are
store of value, unit of account, medium of exchange
A bank run occurs when
many bank depositors are trying to withdraw their funds from the bank
How can OMOs increase the money supply
buy government securities, which increases the amount of reserves in the banking system and fuels deposit expansion
open market operations
a central bank purchasing existing bonds
an increase in the percentage of deposits that banks must keep on hand
an increase in the interest rate that a central bank charges commercial banks for loans
If the federal reserve wants to increase the money supply it could
lower the reserve requirement
When the Fed buys $100 billion of treasury bills from commercial banks, the monetary base increases by $100 billion
The y axis on the money market graph shows the economy's
A decrease in real GDP causes a _______ the money demand curve
leftward shift of
An increase in technology which makes it easier to pay for goods and services without carrying lots of cash causes a _____ the money demand curve
leftward shift of
A decrease in interest rates causes a ________ the money demand curve
An increase in the aggregate price level causes a _________ the money demand curve
rightward shift of
The MD curve will shift to the right if
the aggregate price level increases, real GDP increases, the gvt restricts the hours during which ATMs are allowed to be open, there is a decrease in the number of shops accepting debit cards
The MD curve will shift to the left if
the aggregate price level decreases, real GDP decreases, crime rates increase, increasing the likelihood that people will be robbed
How can the Federal Reserve raise interest rates?
use open market operations to reduce the money supply
What happens to the aggregate price level when the central bank increases the money supply?
AD curve shifts to the right when:
the central bank decreases the discount rate, the central bank uses open market operations to conduct expansionary monetary policy, the central bank increases the money supply, the central bank buys bonds from private banks
AD shifts to the left:
the central bank sells bonds on the open market, the central bank increases the required reserve ratio
Which of the scenerios best reflects the meaning of the term inflation targeting?
A central bank is expected to achieve a 3% annual inflation rate
In the short run, how will an increase in the money supply affect interest rates, the aggregate price level and real GDP?
interest rates will decrease; aggregate price level will increase; real GDP will increase
In the long run, an increase in money supply will cause:
real GDP to stay the same; aggregate price level to increase
In the long run, reducing money supply ________ the interest rate
does not change
What happens to the aggregate price level when the government increases the money supply?
If the money supply increases by 10%, in the long run
the price level increases by 10%
Expansionary monetary policy causes _____ in interest rates in the short run and ________ in interest rates in the long run
a fall; no change
If the economy is at potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will
Money is neutral in _____ since it cannot alter __________
the long run; real aggregate output
If interest rates are at the zero lower bound
monetary policy is ineffective
The Taylor rule:
provides guidance for setting a federal funds rate target.
Inflation targeting occurs when the central bank sets an explicit goal for the inflation rate and uses monetary policy to hit that goal
What is the long run effect of an increase in the money supply on real GDP?
it has no effect on GDP
You might also like...
econ 203 test 3 Matthews
macroeconomics test 3
Other sets by this creator
Econ midterm multiple choice
Other Quizlet sets
KIN 2nd EXAM (FEB 20TH -MARCH 20TH)
NUTR 202 Final Exam
matts quizlet for micro