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STUDY GUIDE Ch 8 -10

Econ 2301 STUDY GUIDE, Chs 8 - 10

QuestionAnswer
An aggregate demand (AD) curve shows the real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
If some of a person's wealth is in cash, it follows that this person's wealth will change as the price level changes.
As the price level rises, ceteris paribus, people holding some of their wealth in monetary form become less wealthy and they buy less.
Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________. less wealthy and they buy less.
Which of the following factors can shift the AD curve? increases; rightward
If consumption changes because of a change in a factor other than the price level, then the AD curve shifts.
If consumption changes because of a change in the price level, then the economy moves from one point on an AD curve to another point on the same curve.
Expectation of lower future prices is a leftward shifter of AD.
Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of some consumption plans, resulting in __________ the AD curve.
As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________. acceleration; a rightward shift of
Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar. The dollar has __________________, making American goods __________ expensive for Mexicans. depreciated; less
An appreciation of the U.S. dollar tends to __________ U.S. net exports and shift the U.S. AD curve to the __________. lower; left
An increase in the money supply may __________ total expenditures, leading to a __________ shift of the AD curve. increase; rightward
A short-run aggregate supply curve shows the real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
An increase in the price of nonlabor inputs shifts the SRAS curve leftward.
An increase in the price of oil will cause a leftward shift in the SRAS curve.
An increase in labor productivity shifts the SRAS curve rightward.
Short-run equilibrium exists where the AD curve intersects the short-run aggregate supply (SRAS) curve.
A decrease in consumption at a given price level shifts the AD curve to the left.
In the short run, an increase in investment, ceteris paribus, shifts the AD curve to the right, causing equilibrium price level to rise and equilibrium Real GDP to increase
Which of the following would cause a rightward shift in the AD curve? an increase in government purchases of goods and services
Ceteris paribus, Real GDP and the unemployment rate are inversely related.
Which of the following best describes the international trade effect? a and c
When the economy is at its full employment Real GDP, the unemployment rate is equal to the natural unemployment rate.
If Real GDP is less than Natural Real GDP, the economy is in a recessionary gap.
If Real GDP is less than Natural Real GDP, then the (actual) unemployment rate is greater than the natural unemployment rate.
If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent, then the economy is producing more Real GDP than it does at full employment.
When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve the economy is in long-run equilibrium.
An inflationary gap exists when AD and SRAS intersect to the right of Natural Real GDP.
Refer to Exhibit 9-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n) recessionary gap.
Refer to Exhibit 9-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n inflationary gap.
In a "self-regulating" economy, inflationary and recessionary gaps are eliminated by forces internal to the economy, without government intervention.
The physical production possibilities frontier illustrates the different combinations of goods that society can produce given the constraints of finite resources and the current state of technology.
Suppose the economy is self-regulating and the (actual) unemployment rate is less than the natural unemployment rate. This means that the economy is producing a level of output above its natural level and will eventually cut back on output.
f an economy is operating __________ its institutional production possibilities frontier, it is producing __________ output than it would be at full employment. a and d
The LRAS curve is always vertical.
A laissez-faire macroeconomic policy, based on a __________ in self regulating properties of the economy, implies __________ by the government. belief, noninterference
If the economy is producing Natural Real GDP, then the c and d
The structural unemployment rate is 1.3 percent, the frictional unemployment rate is 2.1 percent, and the current unemployment rate is 4.9 percent. The economy is in a recessionary gap producing less than Natural Real GDP.
Some economists believe the economy is self-regulating. What does this mean? It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP
If the economy is self-regulating and in an inflationary gap, wages and prices will rise.
A necessary condition for a money economy to be self-regulating is that interest rates must be flexible in the credit market.
Which of the following is not consistent with a self-regulating economy? None of the above; that is, all are consistent with a self-regulating economy.
Which of the following statements is true? Wages are flexible if the economy is self-regulating.
If the economy is currently operating below its institutional production possibilities frontier (institutional PPF), it is in a recessionary gap.
In the classical view of the credit market, a rise in saving produces a rise in investment via a falling interest rate.
Say's law says supply creates its own demand.
Which of the following is most nearly consistent with Say's law? When a person produces one good, he or she plans to demand other goods.
If total production is greater than total expenditures, there will be an increase in inventories.
When total expenditures are greater than total production, __________ is produced than households want to buy, which leads to __________ in inventory, which signals firms that they have __________, which causes firms to increase production. total expenditures are greater than total production.
When total production is greater than total expenditures, all of the above
John Maynard Keynes drew many economists ______________ the classical view. The classical view held that a market economy __________ regulate itself to avoid periods of excessive unemployment. away from; can
According to the efficiency wage model, firms tend to pay workers in excess of the market-clearing wage to provide an incentive for productivity and efficiency
Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that something ought to be done cause the economy may not be able to restore itself to employment. Jones says that it is better to take a "hands-off" approac Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist.
Keynesian economics was developed during the Great Depression.
Autonomous consumption is that portion of total consumption that is independent of the level of income.
Keynes believed that saving is more responsive to changes in income than to changes in interest rates.
Keynes believed that monopolistic elements in the economy prevent immediate and sharp price declines in response to falling demand.
If income rises from $1,000 to $1,400 and consumption rises from $800 to $1,175, the marginal propensity to consume is __________ percent. 93.75
According to the Keynesian consumption function, an increase in disposable income will result in an increase in consumption.
The marginal propensity to consume plus the marginal propensity to save is equal to one.
If autonomous consumption rises by $20 and, as a result, Real GDP rises by $200, then the multiplier is 10.
The larger the marginal propensity to save, a and c
When the MPC = 0.9, the multiplier is 10.00.
When the MPC = 0.6, the multiplier is 2.50.
If an economy consumes 75 percent of any increase in income, then an increase in autonomous investment of $1 billion could result in an increase in Real GDP of as much as $4.0 billion.
In the real world, we should expect the multiplier process to work itself out only over many months, perhaps even years.
The multiplier process following a drop in autonomous spending is just as powerful as for a rise in autonomous spending.
According to Keynes, aggregate demand could be too low in an economy. What does this mean? It means spending in the economy is too low to bring about full employment.
For Say's law to hold in a money economy, funds saved must give rise to an equal amount of funds invested.
Which of the following is good evidence against the classical view of Say's law? Investment does not always rise as interest rates fall.
Government purchases rise by $100 billion and the MPC is equal 0.60. Assuming that idle resources exist at each expenditure round, and the multiplier is operative, the change in Real GDP equals $250 billion
Created by: Taysia
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