Chapter 33 Aggregate Demand and Aggregate Supply TRUE FALSE variables 1 According to classical macroeconomic theory changes in the money supply change nominal but not real ANS T NAT Analytic TOP Classical economics 1 DIF LOC Aggregate demand and aggregate supply REF 33 2 MSC Definitional 2 Because economists understand what things change GDP they can predict recessions with a fair amount of accuracy 3 Most macroeconomic variables that measure some type of income spending or production fluctuate closely ANS F NAT Analytic TOP Economic fluctuations MSC 1 DIF LOC Aggregate demand and aggregate supply REF 33 1 Analytical together ANS T NAT Analytic TOP Economic fluctuations MSC 1 DIF LOC Aggregate demand and aggregate supply REF 33 1 Interpretive Like real GDP investment fluctuates but it fluctuates much less than real GDP 4 ANS F NAT Analytic TOP Economic fluctuations Investment DIF LOC Aggregate demand and aggregate supply REF 33 1 1 MSC Definitional 5 When output rises unemployment falls ANS T NAT Analytic TOP Economic fluctuations Unemployment 1 DIF LOC Aggregate demand and aggregate supply REF 33 1 MSC Definitional 6 An increase in the money supply causes output to rise in the long run ANS F NAT Analytic TOP Monetary neutrality DIF LOC Aggregate demand and aggregate supply MSC Definitional REF 33 2 1 7 Most economists believe that classical theory describes the world in the short run but not in the long run ANS F REF 33 2 NAT Analytic TOP Classical dichotomy DIF LOC Aggregate demand and aggregate supply MSC Interpretive 1 8 A change in the money supply changes only nominal variables in the long run ANS T NAT Analytic TOP Monetary neutrality DIF LOC Aggregate demand and aggregate supply MSC Definitional REF 33 2 1 9 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 ANS F NAT Analytic TOP Aggregate demand slope Short run aggregate supply slope MSC Definitional DIF LOC Aggregate demand and aggregate supply REF 33 2 1 government and customers abroad want to buy at each price level ANS T NAT Analytic TOP Aggregate demand curve 2 DIF LOC Aggregate demand and aggregate supply REF 33 2 MSC Definitional 10 The aggregate demand curve shows the quantity of domestic goods and services that households firms the 2184 11 A decrease in the price level makes consumers feel wealthier so they purchase more This logic helps explain Chapter 33 Aggregate Demand and Aggregate Supply 2185 why the aggregate demand curve slopes downward ANS T NAT Analytic TOP Wealth effect 1 DIF LOC Aggregate demand and aggregate supply MSC Analytical REF 33 3 12 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 foreign currency exchange ANS T NAT Analytic TOP Wealth effect Exchange rate effect DIF LOC Aggregate demand and aggregate supply REF 33 3 2 MSC Analytical 13 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 14 The downward slope of the aggregate demand curve is based on logic that as the price level rises consumption ANS T NAT Analytic TOP Aggregate demand slope 2 DIF LOC Aggregate demand and aggregate supply REF 33 3 MSC Interpretive investment and net exports all fall ANS T NAT Analytic TOP Aggregate demand slope 2 DIF LOC Aggregate demand and aggregate supply REF 33 3 MSC Interpretive 15 Aggregate demand shifts to the left if the money supply increases ANS F NAT Analytic TOP Aggregate demand shifts Monetary policy DIF LOC Aggregate demand and aggregate supply REF 33 3 1 16 A decrease in the money supply causes the interest rate to rise so that investment falls ANS T NAT Analytic TOP Aggregate demand shifts Money supply DIF LOC Aggregate demand and aggregate supply MSC Analytical REF 33 3 2 MSC Applicative 17 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 ANS T NAT Analytic TOP Aggregate demand shifts Net exports DIF LOC Aggregate demand and aggregate supply REF 33 3 MSC 2 Analytical 18 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 ANS T NAT Analytic TOP Aggregate demand curve 3 DIF LOC Aggregate demand and aggregate supply REF 33 3 MSC Analytical 19 An increase in the money supply shifts the long run aggregate supply curve to the right ANS F NAT Analytic TOP Long run aggregate supply Monetary policy MSC DIF LOC Aggregate demand and aggregate supply REF 33 4 Applicative 1 20 Technological progress shifts the long run aggregate supply curve to the right ANS T NAT Analytic TOP Economic growth and inflation DIF LOC Aggregate demand and aggregate supply MSC Applicative REF 33 4 1 22 Because the price level does not affect the long run determinants of real GDP the long run aggregate supply 2186 Chapter 33 Aggregate Demand and Aggregate Supply 21 Other things the same technological progress raises the price level ANS F NAT Analytic TOP Economic growth and inflation DIF LOC Aggregate demand and aggregate supply MSC Applicative REF 33 4 2 is vertical ANS T NAT Analytic TOP Long run aggregate supply 1 DIF LOC Aggregate demand and aggregate supply REF 33 4 MSC Interpretive demand shifted right over time ANS F NAT Analytic TOP Economic growth and inflation 2 DIF LOC Aggregate demand and aggregate supply REF 33 4 MSC Analytical 23 We could explain continued increases in both output and the price level by supposing that only aggregate 24 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 ANS T NAT Analytic TOP Misperceptions theory MSC 1 DIF LOC Aggregate demand and aggregate supply REF 33 4 Interpretive 25 All explanations for the upward slope of the short run aggregate supply curve suppose that the quantity of output supplied
View Full Document
Unlocking...