Econ Test 3

Aggregate Demand (AD) is total spending by all the buyers at various price levels during a given time period. Which of the following correctly includes all the components of Aggregate Demand?

Consumption Expenditure, Investment Spending, Government Purchases, Net Export

Aggregate Supply (AS) denotes the relationship between the B. total quantity of goods and services that firms choose to produce and sell and the

aggregate price level for output.

The aggregate demand curve reflects

 a direct relationship between the price level in an economy and the real GDP demanded.

The graph below reflects a shift of Aggregate Supply (AS) to the left. What could be the reason behind such a shift or decrease in AS?

an increase in input prices

Which term is used to describe the maximum quantity that an economy can produce, in the context of existing inputs, market conditions, and institutions?

potential GDP

In an AD-AS model:

 real GDP is shown on the horizontal axis.

 What is the equilibrium price level (P) where Real GDP demanded is equal to Real GDP supplied, or where there is no unwanted inventory investment?

125

Referring to the diagram below, which of the following is a true statement?

There is sufficient aggregate demand to cause inflationary pressures.

When the economy of a country is operating close to its full capacity:

the unemployment rate is greater than the natural rate of unemployment.

The ____ in an AD/AS diagram is most relevant for Keynes's Law.

AD curve

 One of the components of Aggregate Demand, Investment Spending (I) increases as:

Businesses become optimistic about the future of the economy

According to the Keynesian framework

a decrease in interest rates may cause a recession, but not inflation.

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering

macro-economic model for minimizing their effects.

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short run will lead to:

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

labor supply shifts to the right, if wages are flexible.

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

 In reference to the graph, which of the following answer choices is INCORRECT?

prices and wages are sticky and do not adjust rapidly.

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

short-run Phillips curve.

In the graph below, if an economy is currently in equilibrium at E₀ and produces Y₀ output, and an equilibrium associated with full employment output for this economy is E₁, with Y₁ output, then which of the following statements reflects this economy and appropriate fiscal policy measures to correct the situation?

There is an inflationary gap of $80 billion associated with macroeconomic equilibrium E₀.

An inflationary gap exists which can be fixed with

contractionary fiscal policy such as lower government spending and higher taxes.

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its

potential GDP, natural rate of unemployment.

Which of the following is a distinguishing characteristic of the neoclassical view?

C. Wages are maintained in original equilibrium

In order to shift the vertical supply curve to the left, which of the following would have to occur?

Breakdown of key market institutions.

Which of the following government policies would be supported by neoclassical macroeconomic economists?

Focus on long-term growth and controlling inflation

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

an increase in the price level

In the neoclassical view, changes in ______ can only have a short-run impact on output and on unemployment.

A. wage levels

A vertical aggregate supply curve, where the specific quantity of output and unemployment rate is consistent with many different price levels, will indicate:

 a vertical Phillips curve.

According to the neoclassical view (Chapter 13 in OpenStax Macroeconomics Textbook), what is the appropriate role of the government during a recession?

Using monetary policy to actively reduce interest rates and encourage borrowing and investment.