ECON 2201 Unit 2

The Producer Price Index is based on prices paid for supplies and inputs by:

producers of goods and services

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

Producer Price Index

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

the basket of goods

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _____________.

Inflation rate

Which of the following statements is incorrect?

Employment insurance compensation increases the opportunity cost of being unemployed

What name is given to the index based on the prices of exported or imported merchandise?

International price index

A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

Cyclically unemployed

The _________________ means that a higher price level leads to lower real wealth.

wealth effect

The ____________________ in an AD/AS diagram is most relevant to Say's Law.

steep portion of the AS curve

Potential GDP in the U.S. will be unaffected by ____________

the unemployment rate

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

short term

Changes in the price level of the different components of aggregate demand are reflected in the AD/ASAD/AS macroeconomic model by a _____________________

downward sloping AD curve

Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?

It shifts the AS curve in the long term

In an AD/AS diagram, an increase in structural unemployment will:

have no effect on AS or AD

Due to inflationary pressures, the national income of households has been spread across a higher overall price base for goods and services. How will this affect be shown in an AD/ASAD/AS model?

a downward sloping AD curve

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

interest rate effect

Aggregate demand curves slope downwards for each of the following reasons EXCEPT

The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods.

In an AD/AS model, the point where the economy has excess capacity is called the:

Keynesian zone of the AS curve

Which of the following will have the greatest influence on the slope of the demand curve in a single market model?

substitute goods

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

higher profits will induce expanded production.

Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed.

total quantity; price level for output

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________

AS right

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

fixed cost of inputs combined with rising prices for outputs

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

flat portion of the AS curve

As the aggregate price level in an economy decreases,

imports decrease

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

aggregate demand

As the aggregate price level in an economy rises, ___________

interest rates increase

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a major trading partner's economic slowdown

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

bigger leakages

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45 degree line

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

potential GDP and aggregate supply

From a neoclassical viewpoint, government should focus less on:

cyclical unemployment

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

an increase in price level.

The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

neoclassical

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

decrease in military spending

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

If aggregate supply is vertical, then aggregate demand does not affect:

the quantity of output

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

is vertical; is vertical

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

coordination

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?

steeper consumption function due to high marginal propensity to consume

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

exchange rates

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

zero

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

aggregate demand