Exam 14: Aggregate Demand and Aggregate Supply

The short-run aggregate supply curve is upward sloping because the nominal wages are sticky. What is the difference between real and nominal wages? Why does stickiness in nominal wages lead to the upward-sloping short-run aggregate supply curve? Would the short-run aggregate supply curve be upward sloping when the real wage is sticky?

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Question 1

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The nominal wage refers to the amount of dollars (or any nominal currency) that are earned, whereas the real wage refers to the amount of goods and services that can be purchased using that nominal wage. It is the nominal wage divided by the overall price level in the economy. If nominal wage is sticky (that is, it does not adjust rapidly), then an increase in the overall price level implies that the real wage that firms have to pay to their workers goes down. If the real wage that firms have to pay their workers goes down, then firms have an incentive to produce additional output. Therefore, the short-run aggregate supply curve slopes upward (higher overall price implies higher output). This relationship will break down if the real wage is sticky because that would mean that nominal wage adjusts to a change in price (higher price will imply higher nominal wage) and that firms therefore will have no incentive to produce higher output.

When the total income of an economy is $1,000, the consumption spending is $900. If the total income increases to $1,500, then consumption spending increases to $1,300. Assuming that the only leakage in the economy is saving, the spending multiplier for the economy is:

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Question 2

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Economic growth refers to an increase in:

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Question 3

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China injects $100 into the U.S. economy by purchasing new software, and the marginal propensity to consume for the U.S. economy is 0.5. Assuming that there are no leakages except savings, the total increase in spending in U.S. economy will be:

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Question 4

In an economy that has no leakages except savings, the government injects $200 of new spending into the economy, and the total spending in the economy increases by $400. The marginal propensity to consume is:

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Question 5

When all else is equal, an increase in the overall price level leads to an increase in:

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Question 6

When the total income of an economy is $1,000, the consumption spending is $800. If the total income increases to $1,500, then consumption spending increases to $1,100. The marginal propensity to consume for the economy is:

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Question 7

Which of the following does NOT represent a leakage out of the multiplier process?

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Question 8

Suppose that the United States signs a new trade treaty that increases its exports to the rest of the world relative to imports. This policy will:

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Question 9

Suppose that a short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve. From this point, the government cuts the personal income tax rate. Compared to what it was in the short run, the nominal wage in the long run will be ____, and the price level will be:

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Question 10

Which of the following variables is measured along the vertical axis of the short-run aggregate supply curve?

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Question 11

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the money supply will lead to:

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Question 12

Which of the following variables is measured along the horizontal axis of the short-run aggregate supply curve?

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Question 13

If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then a decrease in income tax will _ output and will _ the price level.

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Question 14

Use Figure: Macroeconomic Equilibrium. This figure shows four different macroeconomic equilibria for an economy. Which of the following can shift the macroeconomic equilibrium from point B to point A? Figure: Macroeconomic Equilibrium

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Question 15

If the marginal propensity to consume for an economy is 0.8, then the marginal propensity to save for the economy is _____. Assuming that there are no leakages except savings, the spending multiplier for the economy is:

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Question 16

Which of the following will increase aggregate demand, thereby shifting the curve right?

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Question 17

Full employment, or potential output, refers to the real GDP that can be produced in the economy when there is no:

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Question 18

Country A and Country B are identical in every respect except that Country B has a higher income tax rate than Country A. In both countries, the government increases spending by $100. In which country will the overall GDP increase more? Explain how you arrive at the answer.

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Question 19

When _ wages are sticky, an increase in the price level leads to _ in the profit earned by businesses.

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Question 20

Showing 1 - 20 of 105

When the total income of an economy is $1,000, the consumption spending is $900. If the total income increases to $1,500, then consumption spending increases to $1,300. Assuming that the only leakage in the economy is saving, the spending multiplier for the economy is:

Economic growth refers to an increase in:

China injects $100 into the U.S. economy by purchasing new software, and the marginal propensity to consume for the U.S. economy is 0.5. Assuming that there are no leakages except savings, the total increase in spending in U.S. economy will be:

In an economy that has no leakages except savings, the government injects $200 of new spending into the economy, and the total spending in the economy increases by $400. The marginal propensity to consume is:

When all else is equal, an increase in the overall price level leads to an increase in:

When the total income of an economy is $1,000, the consumption spending is $800. If the total income increases to $1,500, then consumption spending increases to $1,100. The marginal propensity to consume for the economy is:

Which of the following does NOT represent a leakage out of the multiplier process?

Suppose that the United States signs a new trade treaty that increases its exports to the rest of the world relative to imports. This policy will:

Which of the following variables is measured along the vertical axis of the short-run aggregate supply curve?

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the money supply will lead to:

Which of the following variables is measured along the horizontal axis of the short-run aggregate supply curve?

If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then a decrease in income tax will _ output and will _ the price level.

Use Figure: Macroeconomic Equilibrium. This figure shows four different macroeconomic equilibria for an economy. Which of the following can shift the macroeconomic equilibrium from point B to point A? Figure: Macroeconomic Equilibrium

If the marginal propensity to consume for an economy is 0.8, then the marginal propensity to save for the economy is _____. Assuming that there are no leakages except savings, the spending multiplier for the economy is:

Which of the following will increase aggregate demand, thereby shifting the curve right?

Full employment, or potential output, refers to the real GDP that can be produced in the economy when there is no:

Country A and Country B are identical in every respect except that Country B has a higher income tax rate than Country A. In both countries, the government increases spending by $100. In which country will the overall GDP increase more? Explain how you arrive at the answer.

When _ wages are sticky, an increase in the price level leads to _ in the profit earned by businesses.

Foundations of Economics

Extension: Understanding Graphs

Markets and Economies

Demand

Supply

Market Equilibrium

Elasticity

Consumer Behavior

Production Costs

Perfect Competition

Market Power

Factor Markets

Market Failure and Government Failure

Measuring an Economys Performance

Fiscal Policy

Money and Banking

Monetary Policy

Economic Growth and Development

International Trade and Finance

Filters

Exam 14: Aggregate Demand and Aggregate Supply

When the total income of an economy is $1,000, the consumption spending is $900. If the total income increases to $1,500, then consumption spending increases to $1,300. Assuming that the only leakage in the economy is saving, the spending multiplier for the economy is:

Economic growth refers to an increase in:

China injects $100 into the U.S. economy by purchasing new software, and the marginal propensity to consume for the U.S. economy is 0.5. Assuming that there are no leakages except savings, the total increase in spending in U.S. economy will be:

In an economy that has no leakages except savings, the government injects $200 of new spending into the economy, and the total spending in the economy increases by $400. The marginal propensity to consume is:

When all else is equal, an increase in the overall price level leads to an increase in:

When the total income of an economy is $1,000, the consumption spending is $800. If the total income increases to $1,500, then consumption spending increases to $1,100. The marginal propensity to consume for the economy is:

Which of the following does NOT represent a leakage out of the multiplier process?

Suppose that the United States signs a new trade treaty that increases its exports to the rest of the world relative to imports. This policy will:

Which of the following variables is measured along the vertical axis of the short-run aggregate supply curve?

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the money supply will lead to:

Which of the following variables is measured along the horizontal axis of the short-run aggregate supply curve?

If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then a decrease in income tax will _____ output and will _____ the price level.

Use Figure: Macroeconomic Equilibrium. This figure shows four different macroeconomic equilibria for an economy. Which of the following can shift the macroeconomic equilibrium from point B to point A? ​ Figure: Macroeconomic Equilibrium

If the marginal propensity to consume for an economy is 0.8, then the marginal propensity to save for the economy is _____. Assuming that there are no leakages except savings, the spending multiplier for the economy is:

Which of the following will increase aggregate demand, thereby shifting the curve right?

Full employment, or potential output, refers to the real GDP that can be produced in the economy when there is no:

Country A and Country B are identical in every respect except that Country B has a higher income tax rate than Country A. In both countries, the government increases spending by $100. In which country will the overall GDP increase more? Explain how you arrive at the answer.

When _____ wages are sticky, an increase in the price level leads to _____ in the profit earned by businesses.

Foundations of Economics

Extension: Understanding Graphs

Markets and Economies

Demand

Supply

Market Equilibrium

Elasticity

Consumer Behavior

Production Costs

Perfect Competition

Market Power

Factor Markets

Market Failure and Government Failure

Measuring an Economys Performance

Fiscal Policy

Money and Banking

Monetary Policy

Economic Growth and Development

International Trade and Finance

Filters

If the short-run macroeconomic equilibrium occurs in the classical range of the short-run aggregate supply curve, then a decrease in income tax will _ output and will _ the price level.

Use Figure: Macroeconomic Equilibrium. This figure shows four different macroeconomic equilibria for an economy. Which of the following can shift the macroeconomic equilibrium from point B to point A? Figure: Macroeconomic Equilibrium

When _ wages are sticky, an increase in the price level leads to _ in the profit earned by businesses.