Deck 33: Aggregate Demand and Aggregate Supply

Question 1

The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run.

Answer 1

True

Question 2

Most economists believe that classical theory describes the world in the short run but not in the long run.

Answer 2

False

Question 3

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

Answer 3

True

Question 4

Most economist agree that money changes real GDP in both the short and long run.

Question 5

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

Question 6

An increase in the money supply causes output to rise in the long run.

Question 7

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Question 8

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

Question 9

Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.

Question 10

Because economists understand what things change GDP, they can predict recessions with a fair amount of accuracy.

Question 11

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

Question 12

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Question 13

Like real GDP, investment fluctuates, but it fluctuates much less than real GDP.

Question 14

The recessions associated with the business cycle come at regular intervals.

Question 15

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Question 16

A change in the money supply changes only nominal variables in the long run.

Question 17

When output rises, unemployment falls.

Question 18

Other things the same, a decrease in the price level makes the interest rate decrease, which leads to a depreciation of the dollar in the market for foreign-currency exchange.

Question 19

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

Question 20

The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the explanations for the slopes of demand and supply curves for specific goods and services.

Question 21

When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase in the price of their product relative to others and so decrease their production.

Question 22

Aggregate demand shifts to the left if the money supply increases.

Question 23

Because the price level does not affect the long-run determinants of real GDP, the long-run aggregate-supply is vertical.

Question 24

Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply.

Question 25

We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.

Question 26

All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output supplied increases when the actual price level exceeds the expected price level.

Question 27

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

Question 28

An increase in the money supply causes the interest rate to fall, investment spending to rise, and aggregate demand to shift right.

Question 29

An increase in the expected price level shifts the short-run aggregate supply curve to the right.

Question 30

An increase in the money supply shifts the long-run aggregate supply curve to the right.

Question 31

A decrease in the money supply causes the interest rate to rise so that investment falls.

Question 32

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

Question 33

The exchange-rate effect is the idea that a higher U.S. price level causes the value of the dollar to increase in foreign exchange markets, and this effect contributes to the downward slope of the aggregate-demand curve.

Question 34

An increase in the actual price level does not shift the short-run aggregate supply curve, but an expected increase in the price level shifts the short-run aggregate supply curve to the left.

Question 35

Technological progress shifts the long-run aggregate supply curve to the right.

Question 36

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Question 37

Other things the same, technological progress raises the price level.

Question 38

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Question 39

The downward slope of the aggregate demand curve is based on logic that as the price level rises, consumption, investment, and net exports all fall.

Question 40

The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve.

Question 41

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Question 42

A change in the supply of labor, all else remaining the same, will shift the short-run aggregate-supply curve.​

Question 43

The model of aggregate demand and aggregate supply is nothing more than a large version of the model of market demand and market supply.​

Question 44

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Question 45

Policymakers who influence aggregate demand can potentially mitigate the severity of economic fluctuations.

Question 46

The term ​business cycle​ implies that economic fluctuations follow a regular, predictable pattern.​

Question 47

If aggregate demand shifts right, then eventually price level expectations rise. The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

Question 48

During World War II government expenditures increased almost five-fold and output almost doubled.

Question 49

Stagflation results from continued decreases in aggregate demand.

Question 50

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Question 51

The theory of short-run economic fluctuations is uncontroversial.​

Question 52

The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.

Question 53

John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.

Question 54

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Question 55

The recession of 2008-2009 was in many ways the worst macroeconomic event in more than half a century.

Question 56

Economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left.

Question 57

If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.

Question 58

The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.

Question 59

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Question 60

If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.

Question 61

Explain how a recession differs from a depression.

Question 62

Suppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify the curves that are affected, and which way these curves would shift.

Question 63

Suppose a recession overseas reduces a country's exports. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Question 64

Suppose a nation experiences increased immigration from abroad. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Question 65

List the three reasons for why the aggregate-demand curve slopes downward.

Question 66

The exchange-rate effect helps explain what feature in the aggregate demand and aggregate supply model?

Question 67

What curve shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level?

Question 68

The wealth effect helps explain what feature in the aggregate demand and aggregate supply model?

Question 69

A decrease in the money supply will shift the long-run aggregate-supply curve to the left.​

Question 70

Suppose speculators lost confidence in foreign economies and bought more U.S. bonds. How would this affect net exports in the U.S., and which way would this cause the aggregate demand curve to shift?

Question 71

Name two macroeconomic variables that decline when an economy goes into recession, and name one macroeconomic variable that rises.

Question 72

Identify the direction of the change during a recession in each of the following: consumption expenditures, investment expenditures, and unemployment.

Question 73

What curve shows the quantity of goods and services that firms choose to produce and sell at each price level?

Question 74

Figure 33-12.
Refer to Figure 33-12. Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

Question 75

Suppose technology advances within a nation. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Question 76

Briefly state the three key facts about economic fluctuations.

Question 77

List the three alternative explanations for the upward slope of the short run aggregate supply curve.

Question 78

Suppose the government raises taxes. Which curves in the aggregate demand and aggregate supply model would be affected, and which way would they shift?

Question 79

Suppose a country offers a new investment tax credit. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?

Question 80

Figure 33-12.
Refer to Figure 33-12. Identify periods 1 and 2.