The aggregate demand curves slopes downward to the right indicating that:
An increase in the price level leads to a decrease in the quantity of real GDP demanded.
Ceteris paribus, a decline in the domestic price level causes:
An increase in the purchasing power of a given money income.
All of the following will increase aggregate demand EXCEPT:
A decrease in foreign real national income.
Ceteris paribus, an increase in aggregate demand when short run aggregate supply is upward sloping causes the price level to ______ real output to ______ and the unemployment rate to _______
Increase;Increase;Decrease.
An upward sloping short run aggregate supply curve models the:
Direct relationship between the price level and the quantity of real GDP supplied.
Higher wages and input prices lead to:
Increase in the cost of production and a decrease in short run aggregate supply.
When the equilibrium (actual) level of real GDP is less than the natural level of real GDP, then:
A recessionary gap exists and the unemployment rate is greater than the natural rate.
In a self correcting economy, inflationary gaps are eliminated by:
Higher wages and input prices leading to an increase in costs of production which decreases SRAS.
A laissez faire policy with respect to the macroeconomy is associated with the:
Classical view that the economy is self correcting.
The long run aggregate supply curve (LRAS) curve is:
Vertical at the economy's natural level of real GDP.
In the classical model:
Flexible wages ensure that labor shortages and surpluses (unemployment) will be temporary.
Say's law can be summarized as:
Supply creates its own demand.
The significance of say's law is that, if it holds true, government policy makers:
Do not have to implement policies designed to increase aggregate demand for the economy to move toward equilibrium at natural real GDP.
When total production in the economy is less than total expenditures:
People are willing and able to buy all output, inventories decrease, and firms increase production and employment.
In the general theory of employment, interest and money, John Maynard Keynes argued that:
A market economy may settle at an equilibrium below full employment in the short run.
According to Keynes:
Equilibrium income and output are determined by aggregate demand in the short run.
In the Keynesian model of the macroeconomy, both consumption spending and personal saving increase in response to:
Higher disposable income.
Keynes argued that, during the great depression, the economy may not automatically correct itself in the short run partly because:
Prices and wages were not flexible, especially downward.
The Keynesian approach to dealing with the massive unemployment during the great depression was to:
Argue in favor of government policies designed to stimulate total spending in the economy in order to increase aggregate demand.
Changes in government spending or taxing policy for the purpose of influencing macroeconomic outcomes is:
Fiscal policy and is conducted by congress.
If equilibrium real GDP is equal to $5,000 billion and natural real GDP is equal to $5,450 billion and the MPC is 0.90, which of the following could move the economy to equilibrium at natural real GDP:
A $45 billion increase in government spending, A $50 billion decrease in taxes, A $450 billion increase in government spending financed by a $450 billion increase in taxes.
When the marginal propensity to consume is 0.80, the spending multiplier is _____ the tax multiplier is _____ and the balanced budget multiplier is ______
5;-4;1
What is the maximum change in equilibrium real GDP that could occur as result of a one time $50 billion tax cut if the MPC is 0.75:
$150 billion increase.
An example of automatic fiscal policy is:
An increase in the number of people receiving unemployment benefits during an economic downturn.
Expansionary fiscal policy may not be an effective tool for increasing aggregate demand if:
Increases in government spending crowd out private sector (investment) activity.
Which of the following is an example of supply side fiscal policy:
Decreases in marginal tax rates designed to increase incentives to work and produce.
The relationship between tax rates and tax revenues is shown by the:
Laffer Curve.
When government spending exceeds tax revenue in a given year:
A budget deficit exists and the national debt increases.