Chapter 32. Aggregate Demand and Aggregate Supply

The intersection of the aggregate demand and aggregate supply curves determines _____.

The equilibrium price level and equilibrium real GDP

Aggregate _____ is a schedule or curve that shows the amounts of real output that buyers collectively desire to purchase at each possible price level.


Which of the following are the four components or determinants of aggregate demand?

- Government spending
- Net export spending
- Consumer spending
- Investment spending

Aggregate supply is represented as a schedule or curve showing the relationship between the nation's _____ level (index) and the amount of real domestic output that firms in the economy produce.


Which of the following describe why wages are inflexible downward?

- Large parts of the labor force work under contracts prohibiting wage cuts for the duration of the contract
- Wages and salaries of nonunion workers are usually adjusted only once a year

Identify factors other than the price level, that would cause net exports to change.

- National income abroad
- Changes in exchange rates

An input price is a(n) _____ price while an output price makes up the price level.


The _____ is when a higher price level reduces the purchasing power of the public's accumulated savings balances.

Real-balances effect

_____ spending will fall if firm's outlook on the economy is pessimistic.


Which of the following result from a reduction in personal income tax rates on consumers?

- Increased take-home income
- Increasing consumer purchases at each possible price level

- A decline in aggregate supply, assuming constant aggregate demand, will result in _____ in the price level.
- A rise in consumer wealth will _____ consumer spending.


Which of the following choices describe the likely effects of a depreciation of the U.S. dollar on production costs and aggregate supply (AS)?

- A decrease in imported resources
- A leftward shift of the AS curve
- U.S. firms obtaining less foreign currency with each dollar
- A higher dollar price of imported resources
- An increase in per-unit production costs from using imported resources

Which of the following will increase per-unit costs and reduce short-run aggregate supply?

Higher business taxes

If the government subsidizes the development of alternative energy it will _____.

Decrease the per-unit production costs and shift the aggregate supply curve to the right

Regulations imposed on firms by the government _____.

Increase per-unit production costs and shift the aggregate supply curve to the left

Supply-side" economists argue that increased government regulations on firms will _____.

Decrease aggregate supply and increase prices

Which of the following are determinants of aggregate demand?

- Change in investment spending
- Change in consumer spending
- Change in net export spending
- Change in government spending

Which of the following explain the reason for the up-sloping aggregate supply curve?

- Higher prices mean higher profits when input costs are fixed
- Input costs are fixed, but output costs are variable

The foreign purchases effect occurs when _____.

- A decline in the US price level increases the quantity of US goods demanded as net exports
- A rise in the US price level reduces the quantity of US goods demanded as net exports

When the US price level rises relative to foreign price levels, _____.

Foreigners buy fewer US goods and Americans buy more foreign goods

Which of the following statements best explains the effect of a decline in the price level on consumption, investment and net exports?

The level of consumption increases, investment increases, and net exports increase

Which of the following influence expected returns on investment projects?

- Business taxes
- Technology
- Degree of excess capacity
- Expectations about future business conditions

The immediate short run, short run, and long run are the three time horizons that influence the relationship between _____.

Price level and real GDP

The relationship between the price level and total output is different in each of the three time horizons because _____.

Input prices are stickier than output prices

What reduces the level of change in input prices in both the immediate short run and the short run?

Contractual agreements

Which of the following are effects of rising national incomes abroad on US exports?

- US aggregate demand curve shifts to the right
- Foreigners are encouraged to buy more US products
- US exports rise

For any increase in aggregate demand, the resulting increase in real _____ will be small, the greater the increase in price level.


When the price level rises, real GDP demanded will _____.


Which of the following are determinants of aggregate supply?

- Changes in legal-institutional environments
- Changes in input prices
- Changes in productivity

Investment spending refers to _____.

Adding to physical capital

If consumers expect their future real incomes to rise, current consumption spending _____ and the aggregate demand curve shifts to the _____.

Increases; Right

If consumers expect inflation in the near future, consumers will wants to buy more products now and _____.

Aggregate demand will increase

Select all of the following choices which are reasons that supply-side proponents are in favor of deregulation.

- Reduced paperwork associated with complex regulations
- Reduced per-unit costs and shift of aggregate supply curve to the right
- Increased efficiency

Which of the following statements best illustrate a decrease in domestic resource prices and associated shift of the AS curve?

- The supply of available land expands shifting the AS curve rightward
- A decrease in the price of steel and electronic components shifts the AS curve rightward
- A substantial rise in immigration decreases wages shifting the AS curve rightward