Deck 33: Aggregate Demand and Aggregate Supply

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

When output rises, unemployment falls.

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

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

Question 14

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.

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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.

Question 21

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 22

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 23

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 24

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 25

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 26

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 27

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 28

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

Question 29

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 30

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

Question 31

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

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

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 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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 54

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

Question 55

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 56

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

Question 57

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

Question 58

Stagflation results from continued decreases in aggregate demand.

Question 59

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

Question 60

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

Question 61

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 62

Figure 33-8
​ ​
Refer to Figure 33-8. Identify periods 1 and 2.

Question 63

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 64

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

Question 65

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

Question 66

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 67

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 68

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 69

Briefly state the three key facts about economic fluctuations.

Question 70

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 71

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

Question 72

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 73

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

Question 74

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 75

Explain how a recession differs from a depression.

Question 76

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

Question 77

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

Question 78

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

Question 79

Figure 33-8
​ ​
Refer to Figure 33-8. Explain how the aggregate demand and aggregate supply model changed during periods 1 and 2.

Question 80

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