If the price level and the money wage rate rise by the same? percentage, the quantity of real GDP supplied? ______ and there is a movement up along the? ______ aggregate supply curve.
does not change; long-run
If the price level rises and the money wage rate remains? constant, the quantity of real GDP supplied? ______ and
there is a movement up along the? ______ aggregate supply curve.
increases; short-run
When the? full-employment quantity of labor? increases, or the quantity of capital? increases, or technology advances? ______.
?long-run aggregate supply and? short-run aggregate supply increase
A rise in the money wage rate with no change in potential GDP creates? ______.
a leftward shift of the SAS curve and no change in the LAS curve
When fuel prices risefuel prices rise ?_______.
When the price level in India increases? _______.
short-run aggregate supply? decreases; the quantity of real GDP supplied increases
Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate.
Choose the statement that is incorrect.
The increase in labor productivity has no effect on? short-run aggregate supply.
The fall in the average weekly wage rate? ______ short-run aggregate supply and? ______ long-run aggregate supply.
increases; does not change
The fall in the minimum wage? ______ short-run aggregate supply and? ______ long-run aggregate supply.
increases; increases
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers.
A rise in wages in China? _______ aggregate supply.
decreases? China's short-run
The? "average overall increase across the? board" wage increase? _______.
decreases? short-run aggregate supply
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ? _____ changes in step with the price level to maintain full employment.
money wage rate
?Short-run aggregate supply is the relationship between the quantity of? _____ supplied and the? _____ when the money wage? rate, the prices of other? resources, and potential GDP remain constant.
real GDP; price level
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and? ______, when everything else remains the same
the price level
A movement along the aggregate demand curve occurs if? _______.
the price level changes and all other factors remain unchanged
As the price level? rises, interest rates
________
and real wealth
____________
rise; decreases
People substitute goods in the
______
for goods in the
__________
.
future; present
?So, as the price level? rises, there is? ______.
a decrease in the quantity of real GDP demanded
Explain the effect of each of the following events on? Canada's aggregate demand.
The government of Canada cuts income taxes.
?Canada's aggregate demand
increases
Explain the effect of each of the following events on? Canada's aggregate demand
The United States experiences strong economic growth.
Canada's aggregate demand
increases
Explain the effect of each of the following events on? Canada's aggregate demand
Canada sets new environmental standards that require power utilities to upgrade their production facilities.
?Canada's aggregate demand
increases
The Fed cutscuts the quantity of money and all other things remain the same.
In the short? run, aggregate demand? _______.
decreases
Read the news? clip, then answer the following questions.
The increase in the personal consumption expenditures? ______ aggregate demand.
The increase in exports? ______ aggregate demand.
increases; increases
The increase in investment? ______ aggregate demand.
The decrease in government spending? _______ aggregate demand.
increases; decreases
Mexico trades with the United States. When the U.S. economy goes into an expansionan expansion?, ?______.
?Mexico's exports to the United States increase?, ?Mexico's aggregate demand increases?, and? Mexico's AD curve shifts rightward
When Mexico increases the quantity of? money, Mexico's aggregate demand? ______.
increases and its AD curve shifts rightward
When the price level in Mexico rises:
the quantity of real GDP demanded decreases
Aggregate demand is the relationship between the quantity of? _____ demanded and the? _____ when all other influences on expenditure plans remain the same.
real GDP; price level
Which of the following statements illustrate fiscal policy??
the US gov has proposed a hike in the corporate tax rate
Which of the following statements illustrate monetary policy??
the Fed has raised the federal funds rate by .3%
Economic growth results when there are increases in? ______.
long run aggregate supply
Inflation results when? ______.
the increase in aggregate demand exceeds the increase in potential GDP
A macroeconomic equilibrium in which real GDP equals potential GDP is? _____ equilibrium.
And one in which real GDP exceeds potential GDP is? _____ equilibrium.
?a full-employment?; an above full-employment
Starting from a? full-employment equilibrium, an increase in aggregate demand? ______ real? GDP, and creates? ______ gap.
increases; an inflationary
In the long? run, the money wage rate? ______, short-run aggregate supply? ______, and the economy returns to a? full-employment equilibrium.
rises; decreases
Starting from a? full-employment equilibrium, a decrease in? short-run aggregate supply? ______ the price level and? ______ real GDP.
increases; decreases
a ~stagflation~ is created
In the? graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0.
Some events that could have changed aggregate demand from AD0 to AD1 are? ______.
an increase in expected future inflation or an increase in foreign income
Following the change in aggregate? demand, the new equilibrium is at? ______.
point C
If potential GDP is? $1 trillion, the economy has moved to
______________________________
equilibrium.
an above full employment
In the? graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0.
The events which could have changed? short-run aggregate supply from SAS0 to SAS1 are? ______.
a rise in the money wage rate or a rise in the money price of any other factor of production
Following the change in aggregate? supply, the new macroeconomic equilibrium is at? ______.
point A
If potential GDP is? $1 trillion, the economy has
__________________
gap.
a recessionary
The initial? short-run aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0.
Some events change aggregate demand from AD0 to AD1?, and? short-run aggregate supply from SAS0 to SAS1.
The new macroeconomic equilibrium is at? ______.
point D
1. Calculate the? short-run equilibrium real GDP and price level.
The? short-run equilibrium real GDP is ________ billion and the price level is _______.
575; 110
2. Does the country have an inflationary gap or a recessionary gap and what is its? magnitude?
The country has? _____ gap and its magnitude is? $ _____ billion.
a recessionary; 25
3. If aggregate demand increases by? $50 billion, what is the new? short-run macroeconomic equilibrium and the output? gap?
The new? short-run macroeconomic equilibrium is at a real GDP of ?$600 billion and a price level of 120.
The economy has
no
output gap.
Suppose the economy had been operating at a? full- employment equilibrium.
After the fall in consumer? confidence, the economy moves to? ______ equilibrium and? ______ gap emerges.
a below full employment; a recessionary
The economy returns to a? full-employment equilibrium as the money wage rate __________
falls
Tax rebates? ______ aggregate demand and the? housing, credit, and financial crises? ______ aggregate demand.
increase; decrease
Read the news? clip, then answer the following questions.
Aggregate demand will increase if? ______.
the effect of the tax rebates and the change in the foreign exchange rate outweigh the effect of the? housing, credit, and financial crises
A recessionary gap eventually emerges even if aggregate demand remains constant because over time? ______.
potential GDP increases
The following events have occurred at times in the history of the United States.
1. A deep recession hits the world economy
2. The world oil price rises sharply
3. U.S. businesses expect future profits to fall
Event 1? ______. Event 2? ______.
decreases aggregate? demand;
decreases? short-run aggregate supply
Event 3 _________
decreases aggregate demand
1. A deep recession hits the world economy
2. The world oil price rises sharply.
3. U.S. businesses expect future profits to fall.
Starting from a position of? long-run equilibrium, a deep recession? ______, and a decrease in expected future profits? ____
decreases real GDP and lowers the price level; decreases real GDP and lowers the price level
Starting from a position of? long-run equilibrium, a sharp increase in the world oil price? ______.
decreases real GDP and raises the price level
Geithner Urges Action on Economy
In the short? run, an increase in consumer spending? ______ real GDP and? ______ the price level.
increases; increases
Geithner Urges Action on Economy
In the short? run, an increase in business investment? ______ real GDP and? ______ the price level.
increases; increases
In the short? run, an increase in exports? ______ real GDP and? ______ the price level.
increases; increases
?Short-run macroeconomic equilibrium occurs when the quantity of? _____ demanded equals the quantity of? _____ supplied at the point of intersection of the? _____ curve and the? _____ curve.
real? GDP; real? GDP; AD?; SAS
?Long-run macroeconomic equilibrium occurs when real GDP? _____ potential GDP? - equivalently, when the economy is on its? _____ curve.
equals; LAS
An above? full-employment equilibrium is an equilibrium when real GDP? _____.
exceeds potential GDP
The gap between? ______ is the output gap.
When? _____, the output gap is called an inflationary gap.
real GDP and potential? GDP;
real GDP exceeds potential GDP
When? _____ there is a? full-employment equilibrium
real GDP equals potential GDP
A below? full-employment equilibrium is an equilibrium in which potential GDP? _____ real GDP.
exceeds
When potential GDP? _____ real? GDP, the output gap is called a recessionary gap.
exceeds
Which of the following economies is facing a stagflation??
The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level.
The defining feature of the classical view of macroeconomics is that the economy is? ______.
self-regulating and always at full employment
Classical macroeconomists recommend? ______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
The defining feature of the Keynesian view of macroeconomics is that the economy is? ______.
rarely at full employment
Keynesian macroeconomists recommend? ______.
policies that actively offset changes in aggregate demand that bring recession
The defining feature of the monetarist view of macroeconomics is that the economy? is______.
?self-regulating and that it will normally operate at full? employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
Monetarist macroeconomists recommend? ______.
policies that keep taxes low to avoid disincentive effects that decrease potential GDP
Consider the following events.
Event? 1: Growth in the world economy slows.
Event? 2: The world price of oil rises.
Event? 3: U.S. labor productivity declines.
Choose the statement that is correct.
A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events.
Adding Up the Cost of? Obama's Agenda
Based on this news? clip, Barack Obama most likely follows the? ______ school of thought and John McCain most likely follows the? ______ school of thought.
Keynesian or new? Keynesian;
classical or new classical
Krugman on Monetary and Fiscal Policy
Based on this news? clip, Paul Krugman most likely follows the? ______ school of thought and Ben Bernanke most likely follows the? ______ school of thought.
Keynesian or new? Keynesian;
Keynesian or new Keynesian
Geithner Urges Action on Economy
Choose the statement that is incorrect
Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.
A Classical macroeconomist believes that the economy is? self-regulating and always? _____.
at full employment
A new Classical view is that business cycle fluctuations are the? _____ responses of a? well-functioning market economy that is bombarded by shocks that arise from the uneven pace of? _____.
efficient; technological change
A Keynesian macroeconomist believes that left? alone, the economy would? _____ operate at full employment and that to achieve and maintain full? employment, active help from fiscal policy and monetary policy is required.
A modern version of the Keynesian?
rarely; sticky; sticky
A monetarist is a macroeconomist who believes that the economy is? self-regulating and that it will normally operate? _____,
at full employment; money growth
1. How has the U.S. economy been performing in recent? weeks?
The U.S.? economy's performance in recent weeks shows that employment is
growing
?and the housing market is
recovering
2. What is the Fed expected to do given the current state of the U.S.? economy?
The Fed is expected to
increase monetary stimulus
to
lower
?long-term interest? rates, given the current state of the U.S. economy.
3. What is the Fed concerned? about?
The Fed is concerned about how
a decrease
in government spending might result in
lower
real GDP
1. What are the three largest items in? China's budget?
The three largest items in? China's budget are? _____, _____, and? _____.
other? items; education; social security and unemployment
3. How does the government budget influence aggregate? demand?
An increase in the goverment budget
increases
aggregate demand.
4. How does the government budget influence aggregate? supply?
Capital expenditure on transportation and expenditure on healthcare and education increase
human
capital and therefore
increase
aggregate supply.
Choose the statement that is incorrect.
Over the business? cycle, aggregate supply fluctuates around potential GDP.
As we move up along the? long-run aggregate supply? curve, ______.
the real wage rate remains constant
As we move up along the? short-run aggregate supply? curve, ______.
the money wage? rate, the prices of other? resources, and potential GDP remain constant
When the price? level, the money wage? rate, and other factor prices rise by the same? percentage, there is a movement
along? ______. Potential GDP? ______.
the LAS curve?; does not change
When the price level rises but the money wage rate and other factor prices remain the? same, there is a movement
along? ______. The quantity of real GDP supplied? ______.
the SAS? curve; increases
An increase in potential GDP increases? ______.
both? long-run aggregate supply and? short-run aggregate supply
Choose the correct statement
The quantity of real GDP demanded is the sum of the real consumption? expenditure, investment, government? expenditure, and exports minus imports.
An increase in expected future income
_____________
aggregate demand.
An increase in the expected future inflation rate
________________
aggregate demand.
An increase in expected future profits
________________
aggregate demand.
increases; increases; increases
Aggregate demand increasesincreases if expected future? income, inflation, or profits? ______.
And aggregate demand increasesincreases if fiscal policy? ______ government expenditure.
increase; increases
Aggregate demand increasesincreases if fiscal policy? ______ taxes or? ______ transfer payments.
decreases; increases
Aggregate demand increasesincreases if monetary policy? ______ the quantity of money and? ______ interest rates.
increase; decrease
Aggregate demand increasesincreases if the exchange rate? ______ or foreign income ?______.
decrease, increase
Starting from a position of? long-run equilibrium, a world expansion? ______, and an increase in expected future profits? ______.
increases real GDP and raises the price? level;
increases real GDP and raises the price level
Starting from a position of? long-run equilibrium, an increase in government expenditures? ______ real GDP and? ______ the price level.
increases real GDP and raises the price level
Everything else remaining the? same, an increase in aggregate demand increases? ______.
the quantity of real GDP supplied
If an economy is at a? full-employment equilibrium and a decrease in consumption expenditure? occurs, the new? short-run equilibrium is? _____ and? _____ gap emerges.
a below? full-employment equilibrium; a recessionary
Changes in consumption spending play a large role in the business cycle because? _______ accounts for approximately? ______ percent of GDP.
consumption? expenditure; 70
Inflation expectations? "become self-fulfilling" because consumers decide to? _____, which? ______.
buy more goods and services at? today's lower? prices; increases aggregate demand
At arrow 1 in the? graph, the economy is in? ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the? ______ of the LAS curve.
a? below; left
At arrow? 2, the economy is in? ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the? ______ of the LAS curve.
an? above; right
Stagflation? ______.
is a combination of recession and inflation
Shoppers Stimulate Discount Stores
The? ______ macroeconomic school of thought justifies the policy discussed in this news clip.
Keynesian
Which of the following statements about the monetarist view of the macroeconomy is ?incorrect?
Left? alone, the economy rarely operates at full employment.
A? ______ macroeconomist believes that the economy is? self-regulating and always at full employment.
A? ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian