question
What does it mean when AD shifts right?
answer
o Real GDP is greater than potential
o Unemployment less than natural rate
o Price level rises
o Unemployment less than natural rate
o Price level rises
question
What causes AD to shift right?
answer
Increase in real wealth
Decrease in real interest rates
Optimism about the future
Rise in expected rate of inflation
Higher real incomes abroad
A fall in the value of a nation's currency
Decrease in real interest rates
Optimism about the future
Rise in expected rate of inflation
Higher real incomes abroad
A fall in the value of a nation's currency
question
How are the shifts right or "booms" corrected in the long run?
answer
by rising interest rates and resource prices. This will cause the SRAS curve will shift left, returning the economy to full employment
question
What occurs when AD shifts left?
answer
o Real GDP is less than potential
o Unemployment greater than natural rate
o Cyclical unemployment present
o Price level falls
o Unemployment greater than natural rate
o Cyclical unemployment present
o Price level falls
question
What causes AD to shift left?
answer
Decrease in real wealth
Increase in real interest rates
Pessimism about the future
Fall in expected rate of inflation
Lower real incomes abroad
A rise in the value of a nation's currency
Increase in real interest rates
Pessimism about the future
Fall in expected rate of inflation
Lower real incomes abroad
A rise in the value of a nation's currency
question
How are shifts to the left or "busts" corrected in the long run?
answer
by falling interest rates and resource prices. This will cause the SRAS curve to shift right, returning the economy to full employment.
question
What happens when SRAS shifts right?
answer
o Real GDP is greater than potential
o Unemployment less than natural rate
o Price level falls
o Unemployment less than natural rate
o Price level falls
question
What causes SRAS to shift right?
answer
Falling resource prices
Falling expected inflation rate
Favorable supply shocks (good weather or lower prices of imported resources)
Falling expected inflation rate
Favorable supply shocks (good weather or lower prices of imported resources)
question
What happens when SRAS shifts to the left?
answer
o Real GDP is less than potential
o Unemployment greater than natural rate
o Cyclical unemployment present
o Price level rises
o Unemployment greater than natural rate
o Cyclical unemployment present
o Price level rises
question
What causes SRAS to shift left?
answer
Rising resource prices
Rising expected inflation rate
Unfavorable supply shocks (bad weather or higher prices of imported resources)
Rising expected inflation rate
Unfavorable supply shocks (bad weather or higher prices of imported resources)
question
What happens when LRAS shifts right?
answer
it represents long term economic growth ,but not a boom or bust
question
What causes LRAS to shift right?
answer
Increase in resource supply
Technology improvements
Institutional changes that improve our productive capacity
Technology improvements
Institutional changes that improve our productive capacity
question
What happens when LRAS shifts left?
answer
oThis represents a permanent reduction in the economy's productive capacity, not a boom or bust
question
What causes LRAS to shift left?
answer
Decrease in resource supply
Technology and productivity deteriorations
Institutional changes
Technology and productivity deteriorations
Institutional changes
question
Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?
answer
an increase in the general level of prices
question
Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the long run?
answer
An unanticipated increase in aggregate demand.
question
Which of the following will most likely cause an increase (shift to the right) in both the long-run and short-run aggregate supply curves?
answer
a technological improvement in robotics that substantially increases labor productivity
question
When output is less than the economy's long-run capacity, which of the following is most likely to occur?
answer
reductions in real interest rates and real resource prices
question
Which of the following will most likely accompany an unanticipated increase in aggregate demand?
answer
an increase in real output
question
Which of the following will cause an increase in aggregate demand within the AS/AD model?
answer
a decrease in the real interest rate
question
During an economic contraction, housing and stock prices generally
answer
fall, leading to a reduction in aggregate demand.
question
If the general level of prices is lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources, which of the following is most likely to occur?
answer
An actual rate of unemployment that is greater than the natural rate of unemployment
question
Which of the following would be most likely to cause a reduction in current aggregate demand in the United States?
answer
The economies of key trading partners fall into a recession.
question
Which of the following will most likely increase the economy's long-run aggregate supply?
answer
advances in technology
question
A rise in the price of oil would be most likely to cause which of the following in the United States?
answer
an economic slowdown or recession
question
If European economies experience strong economic growth, U.S. net exports will
answer
increase and AD will shift rightward.
question
An increase in the long-run aggregate supply curve indicates that
answer
potential real GDP has increased.
question
If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?
answer
an increase in the price level (inflation)
question
When an economy is experiencing an economic boom and operating beyond its long-run capacity,
answer
strong demand for investment funds will push interest rates upward.
question
If a market economy was in a recession, which of the following would help direct it back toward the full employment rate of output?
answer
lower resource prices and lower real interest rates
question
Which of the following would be most likely to cause an increase in current aggregate demand in the United States?
answer
sharp increase in the value of stocks owned by Americans
question
Which of the following statements is most consistent with the view that the economy has a self-corrective mechanism?
answer
When the economy is in a recession, falling resource prices and declining interest rates will direct the economy back to full employment.
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