ECON 214 quiz 6 solutions complete answers

ECON 214 quiz 6 solutions complete answers 

 

__________ would cause a rightward shift of the aggregate demand curve.

 

A rise in the price level that leads to a change in the interest rate, and therefore to a change in the quantity of aggregate demand, will cause:

 

If consumers decide to save a larger percentage of their income, it will be:

 

Suppose a country’s population is growing due to immigration. In the long run, output will _________ due to _________.

 

A rightward shift of the long-run aggregate supply curve means there has been:

 

 

Which of the following is true about recessions in the United States?

           

How many recessions have there been in the United States since 1982?

           

The term ___________ is a popular way to describe the recession-expansion pattern followed by the economy.

           

Business-cycle theory focuses on time horizons of less than:

           

The model used to study business cycles is the:

           

Unemployment rises and real gross domestic product (GDP) growth slows during the:

           

Aggregate demand is determined by adding up the spending of:

           

The aggregate demand curve is best represented by which of the following equations?

           

The aggregate demand curve illustrates the:

           

The price index used to illustrate the aggregate demand curve is the:

           

Which of the following would cause an upward movement along the aggregate demand curve?

           

Which of the following would cause a downward movement along the aggregate demand curve?

           

Consider the wealth effect, interest rate effect, and international trade effect. Of these, the __________ effect is the most significant and the __________ effect is the least significant.

           

The aggregate demand curve slopes downward because:

           

The wealth effect, interest rate effect, and international trade effect all explain why the:

           

When the price level rises, __________ declines from the wealth effect, __________ declines from the interest rate effect, and __________ decline(s) from the international trade effect.

           

The value of one’s accumulated assets is best defined as:

           

The wealth effect is best described as resulting from:

           

An increase in the price level that reduces the real value of wealth is likely to __________ consumption and __________ saving.

           

A fall in the price level that causes a change in the real value of wealth results in:

           

If prices fall, then real wealth __________ and the quantity of aggregate demand __________.

           

When a change in the price level leads to a change in saving, this is known as the:

           

When a change in the price level leads to a change in the interest rate and thus a change in the quantity of aggregate demand, it is called the:

           

The interest rate effect results from people:

           

When firms invest less because people are saving less, it is called the:

           

According to the interest rate effect, an increase in the price level leads to __________ in the interest rate, and therefore to __________ in the quantity of aggregate demand.

           

Suppose that an increase in the price level reduces the value of real wealth, which then causes a reduction in consumption but no change in saving. In this case:

           

When saving declines, the quantity of investment will __________, and therefore aggregate demand will __________.

           

When a change in the price level leads to a change in the quantity of net exports demanded, it is called the:

           

When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.

           

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:

           

Shifts in the aggregate demand curve are caused by:

           

Suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February. Starting in February, these students are likely to __________ spending and __________ saving.

           

You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________.

           

When median home prices rise, the value of real wealth __________ and aggregate demand __________.

           

If people expect higher income in the future, then spending today __________ and aggregate demand __________.

           

An increase in the value of the dollar will __________ exports and __________ imports.

           

When foreign income rises, U.S. aggregate:

           

An increase in the value of the dollar will:

           

__________ would cause a leftward shift of the aggregate demand curve.

           

 If large emerging economies continue to grow rapidly, we can expect U.S. aggregate:

           

 You read a study that predicts that rising oil prices projected for this summer are certain to fuel inflation. Having taken an economics class, due to this expected change in prices, you predict that spending today will _________ and aggregate demand today will _________.

           

Which of the following would shift aggregate demand to the right?

           

Which of the following would shift aggregate demand to the left?

           

Input prices affect the firm’s _________, and output prices affect the firm’s _________.

           

Aggregate demand is about _________ and aggregate supply is about _________.

           

Aggregate supply describes a relationship between:

           

When decision makers have time to fully adjust to changes in the overall price level, we refer to this as:

           

The long run is best defined as a period of time such that:

           

When prices in the economy have not fully adjusted, we say that:

           

Which of the following is true about the price level and aggregate supply?

           

Which of the following is true?

           

In the long run, the output of an economy:

           

Shifts in the long-run aggregate supply curve are caused by:

           

The long-run aggregate supply curve is:

           

The long-run aggregate supply curve is:

           

The long-run output of an economy depends on:

           

In the long run, a technological advance that improves communication can be expected to _________ labor productivity and _________ unemployment.

           

When an economy experiences economic growth:

           

New computer technologies can be expected to:

           

Which of the following would cause an increase in long-run aggregate supply?

           

 If the price level rises by 10%, then all else being equal, the long-run quantity of aggregate supply will:

           

If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:

           

All else being equal, as the population ages and many people leave the labor force:

           

When an economy has a more stable and well-developed financial system, it is reasonable to expect:

           

Increases in productivity will:

           

All else being equal, an increase in _________ would shift the long-run aggregate supply curve to the left.

           

An economy has experienced a rightward shift of its long-run aggregate supply curve and is now producing on that new long-run aggregate supply curve. It is reasonable to expect that:

           

Input prices are _________ in the short run and _________ in the long run.

           

A supply shock causes a shift in:

           

A supply shock is defined as:

           

Shifts in the short-run aggregate supply curve are caused by:

           

When inflation pushes up prices in the economy, input prices are _________ and revenues _________ in the short run.

           

The relationship between sticky input prices and flexible output prices explains:

           

The slope of the short-run aggregate supply curve can be explained by:

           

Menu costs help to explain:

           

When the general price level rises and firms decide not to change their prices in the short run, this can be attributed to:

           

If the price level falls but workers are reluctant to accept a pay cut, this is an example of:

           

If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling, then the short-run aggregate supply curve would be:  

           

 Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level. This means wages either increase or decrease depending on the percent change in the general price level. In this economy:

           

Which of the following causes an increase in short-run aggregate supply?

           

 An increase in the general price level will lead to:

           

 _________ would decrease short-run aggregate supply.

           

 Which of the following would affect both short-run and long-run aggregate supply?

           

 A technological advance leads to a shift in:

           

An increase in expected future prices causes:

           

If inflation turns out to be higher than expected, this will:

           

 An increase in short-run aggregate supply could be the result of:

           

The economy is in short-run equilibrium when:

           

The economy is in long-run equilibrium when:

           

Adjustments in _________ naturally move the economy toward long-run equilibrium.

           

Refer to the following figure to answer the next five questions.

 

 Based on the figure, which points represent long-run equilibrium?

           

Based on the figure, which points represent short-run equilibrium?

           

Based on the figure, if the economy is currently at point B, then in the long run, we can expect we will move to:

           

Based on the figure, an increase in _________ could cause the economy to move from point A to point D.

           

Based on the figure, a decrease in _________ could cause the economy to move from point A to point B.

           

Suppose advances in computer technology lead to a surge in worker productivity. In the long run, output will _________ and the price level will _________.

           

Suppose a hurricane destroys 20% of the capital stock in a country. In the long run, output will _________ and the price level will _________.

           

Suppose a prolonged war in a country destroys 30% of the capital stock. In the long run, the price level will _________ as _________.

           

Suppose new drilling techniques increase the world oil supply. In the long run, output will _________ and the price level will _________.

           

Suppose a country’s population is aging and the size of the workforce is declining. In the long run, output will _________ and the price level will _________.

           

An increase in long-run aggregate supply can be expected to _________ the price level and _________ the natural rate of unemployment.

           

Refer to the following figure to answer the next three questions.

 

 Based on the figure, which of the following would cause the long-run equilibrium point to change from point B to point D?

           

Based on the figure, which of the following would cause the aggregate demand curve to shift from AD2 to AD1?

 

Based on the figure, if the economy is initially at point B and new technology leads to an increase in labor productivity, then in the long run we will end up at point __________.

           

If short-run equilibrium output is above full employment output, then in the long run input prices will:

           

An increase in short-run aggregate supply immediately leads to:

           

 Supply shocks cause short-run aggregate supply to:

           

A severe drought hits a country and reduces farm output by 50%. In the short run, this will __________ output and __________ employment.

           

Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.

           

A severe drought hits a country and reduces farm output by 50%. This will impact:

           

If the current short-run equilibrium level of output is greater than full employment output, we can then expect that in the long run:

           

If the current short-run equilibrium level of output is less than full employment output, we can then expect that in the long run:

           

 Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________.

           

Refer to the following figure to answer the next two questions.

 

 

Based on the figure, a negative supply shock is best represented by a movement from:

 

 Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS 1 to SRAS 2?

           

An increase in aggregate demand is beneficial in the short run because __________, but harmful in the long run because __________.

           

A decrease in aggregate demand is harmful in the short run because __________, but beneficial in the long run because __________.

           

An increase in aggregate demand is harmful because:

           

Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will __________ and output will __________.

           

Suppose that many countries in Europe sink into recession. In the short run, output in the United States will __________ and the price level will __________.

           

Suppose that you have the following information about the economy, where all figures are in millions of dollars:

         Full employment output = $2,000

         Consumption = $1,200

         Investment = $400

         Government spending = $500

         Net exports = −$200

Because short-run output is __________ full employment output, in the long run we would expect the price level to __________.

           

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will __________ and the price level will __________.

           

Suppose there is a surge in stock market values. In the short run, we would expect the price level to __________ and the unemployment rate to __________.

           

Suppose people are worried about losing their jobs. In the short run, this will:

           

Suppose housing values fall during a recession. In the short run:

           

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will __________, output will __________, and employment will __________ in the long run.

           

Which of the following would cause an increase in the price level in the long run?

           

Which of the following would cause an increase in employment in the short run?

           

Refer to the following figure to answer the next five questions.

 

Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point __________ and in the long run to point __________.

           

Based on the figure, starting at point A, if there is an increase in the price of oil, then in the short run we move to point __________ and in the long run to point __________.

           

 Based on the figure, if the economy is currently at point B, then in the long run, we can expect the economy to be at point __________.

           

Based on the figure, if the economy is at point F, then in the long run, we can expect:

           

Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was: