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Economics > Econ Test 3 - Aggregate Demand and Supply Analysis > Flashcards

Econ Test 3 - Aggregate Demand and Supply Analysis Flashcards

0
Q

Aggregate demand is made up of how many components?

A

four

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1
Q

The total quantity of an economy’s output of final goods and services demanded

A

Aggregate Demand

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2
Q

What are the four components that make up aggregate demand?

A

consumption spending
investment spending
Government spending
Net exports

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3
Q

Yad =

A

C + I + G + NX

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4
Q

What is consumer spending on goods and services?

A

consumption

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5
Q

What is business spending on machines, factories, other capital goods, plus spending on new home construction?

A

Investment spending

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6
Q

What is federal, state, and local government spending on labor and all other goods and services and consumables?

A

Government spending

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7
Q

What is foreign spending on domestically produced goods and services?

A

Net exports

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8
Q

What is the net of domestic spending on foreign produced goods and services?

A

Net Exports

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9
Q

What is the relationship between the quantity of aggregate output demanded and the inflation rate when all other variables are held constant?

A

Aggregate Demand Curve

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10
Q

What makes up the aggregate demand curve?

A

output demanded

inflation rate

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11
Q

What is a positive function of disposable income?

A

Consumption spending

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12
Q

Consumption spending is a positive function of what?

A

disposable income

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13
Q

What is a negative function of the real interest rate?

A

Investment spending

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14
Q

Investment spending is a negative function of what?

A

real interest rate

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15
Q

The relationship between aggregate demand and inflation is based on the recognition that?

A

rising inflation will elicit a real interest rate response from the monetary authorities

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16
Q

Higher real interest rate increases costs of financing household consumption purchases which works to reduce what?

A

consumption spending

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17
Q

Higher real interest rates does what to the costs of financing household consumption purchases?

A

increases costs

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18
Q

Higher real interest rates increase the cost of financing capital purchases which works to reduce what?

A

business investment spending

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19
Q

Higher increases of costs does what to financing capital purchases?

A

rises

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20
Q

Higher real interest rates increases the attractiveness of domestic assets and currency increases what?

A

the foreign exchange value of the dollar

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21
Q

When the foreign exchange value of the dollar goes up this works to encourage what?

A

imports and discourage exports

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22
Q

Economists always have to show what?

A

downward sloping demand curves, micro or macro

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23
Q

An increase in real interest rate does what to aggregate demand and shifts the AD curve where?

A

decreases AD

shifts left

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24
Q

A decrease in government spending does what to aggregate demand and shifts the AD curve where?

A

decreases aggregate demand

shifts left

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25
Q

An increase in net exports does what to the aggregate demand and shifts the AD curve where?

A

increases AD

shifts right

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26
Q

An increase in consumption spending does what to aggregate spending and shifts the AD curve where?

A

increases AD

shifts the AD curve right

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27
Q

A decrease in Investment/Business spending does what to aggregate demand and shifts the AD curve which way?

A

decreases AD

shifts the AD curve left

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28
Q

An increase in financial frictions does what to aggregate demand and shifts the AD curve where?

A

decreases aggregate demand

shifts the AD curve left

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29
Q

An increase in inflation rate does what to buying power?

A

decreases

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30
Q

A decrease in buying power does what to household and business spending?

A

decreases

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31
Q

What is real money balances?

A

buying power

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32
Q

More uncertainty encourages who to spend less as inflation rises?

A

households and business

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33
Q

Higher inflation makes domestic prices rise how in foreign markets?

A

rise faster

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34
Q

Rising goods prices in foreign markets does what to export sales?

A

Reduces

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35
Q

A reduction in export sales does what to Net exports spending?

A

less of it

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36
Q

A decrease in the quantity of aggregate output demanded moves the AD curve how?

A

moves up the AD curve

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37
Q

AD curve is sloped how?

A

negatively

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38
Q

A rise in general uncertainty shifts the Aggregate demand curve where?

A

left

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39
Q

General uncertainty does what to households and business spending?

A

constrains it

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40
Q

A rise in monetary policy shifts the AD curve where?

A

left

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41
Q

A fall in monetary policy shifts the AD where?

A

right

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42
Q

A rise in government purchases shifts the AD where?

A

right

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43
Q

A fall in government purchases shifts the AD where?

A

left

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44
Q

A rise in taxes shifts the AD curve where?

A

left

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45
Q

A fall in taxes shifts the AD curve where?

A

right

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46
Q

A rise in net exports shifts the AD where?

A

right

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47
Q

A fall in net exports shifts the AD curve where?

A

left

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48
Q

A rise in investment shifts the demand curve where?

A

right

49
Q

A rise in autonomous investment shifts the AD curve where?

A

right

50
Q

A rise in financial frictions shifts the AD curve where?

A

left

51
Q

The total quantity of an economy’s output of final goods and services supplies

A

Aggregate supply

52
Q

The relationship between the quantity of aggregate output supplied and the inflation rate when all other variables are held constant

A

Aggregate supply curve

53
Q

Price level is another term for?

A

inflation rates

54
Q

What takes a long time to adjust to new different conditions?

A

wages and prices

55
Q

Why is there a difference in long and short run aggregate supply curves?

A

prices need time to fully adjust

56
Q

Long run aggregate supply curve is not determined or affected by what adjustments?

A

wage and price

57
Q

A time frame where all short run deviations from the economy’s full employment productive capacity are resolved

A

long run

58
Q

How many factors determine aggregate supply?

A

three

59
Q

What three factors affect aggregate supply?

A

available capital
fully employed labor
available technology

60
Q

Reflects the economy’s maximum productive capacity when all resources are fully employed at sustainable levels

A

long run aggregate suppply

61
Q

The long run AS curve runs how on a graph?

A

vertical

62
Q

Why is the long run aggregate supply curve vertical?

A

since inflation rate is not a productive resource

63
Q

The non-accelerating inflation rate of unemployment is the unemployment rate below which the inflation rate accelerates due to?

A

excess demand in the economy

64
Q

The non-accelerating inflation rate of unemployment is the unemployment rate above which the inflation rate decelerates due to?

A

excess supply

65
Q

An increase in capital shifts the long run aggregate supply curve where?

A

right

66
Q

An increase in labor shifts the long run aggregate supply curve where?

A

right

67
Q

An increase in technology shifts the long run aggregate supply curve where?

A

right

68
Q

A fall in the natural rate of unemployment shifts the long run aggregate supply curve where?

A

right

69
Q

A decrease in capital shifts the long run aggregate supply curve where?

A

left

70
Q

A decrease in labor shifts the aggregate supply curve where?

A

left

71
Q

A decrease in technology shifts the long run aggregate supply curve where?

A

left

72
Q

An increase in the natural rate of unemployment shifts the long run aggregate supply curve where?

A

Left

73
Q

More heavily utilized labor reduces what?

A

the natural rate of unemployment

74
Q

What is the total quantity of an economy’s output of final goods and services supplied?

A

aggregate supply

75
Q

In the short run wages and prices tend to be?

A

sticky or rigid

76
Q

As output rises above its long-run potential, demand for resources does what?

A

bids up wages and prices

77
Q

The speed of wage and price adjustments is what in economics?

A

its much debated

78
Q

What is much debated in economics?

A

speed of wage and price adjustments

79
Q

Perfectly flexible wages and prices/perfect sensitive inflation rate response to the output gap imply a perfectly vertical what?

A

Aggregate supply curve

80
Q

A rise in expected inflation does what to the aggregate supply curve?

A

shifts it up

81
Q

A rise in price shock does what to aggregate supply curve?

A

shifts up

82
Q

A rise in output gap does what to the aggregate supply curve?

A

shifts up

83
Q

A fall in expected inflation does what to the aggregate supply curve?

A

shifts down

84
Q

A fall in price shock does what to the aggregate supply curve?

A

shifts down

85
Q

A fall in output gap does what to the aggregate supply curve?

A

shifts down

86
Q

A rise in expected inflation or price shock does what to the short run aggregate supply curve?s

A

shifts up

87
Q

What are the differences between actual GDP and potential GDP?

A

output gaps

88
Q

The output that would be produced if the economy’s resources were fully employed at their long-run sustainable intensities?

A

potential GDP

89
Q

What kind of unemployment is there when potential GDP is involved?

A

frictional

90
Q

A higher output gap does what to inflation?

A

increases

91
Q

A persistent output gap increases expected inflation and shifts the aggregate suply curve?

A

Up

92
Q

In the long-run, the economy exhibits what kind of tendencies?

A

self correcting

93
Q

What does much of the debate about short run out revolve around?

A

The speed of the adjustment and to what extent the actions of the government should be

94
Q

What is generally agreed upon about short run output?

A

it will eventually return to a natural rate

95
Q

What adjustment process has inflexible or rigid wages that are particularly downward?

A

slow adjustment process

96
Q

What adjustment process has a need for active government policy?

A

slow adjustment process

97
Q

What are the two types of adjustment processes?

A

slow and rapid

98
Q

What adjustment process has flexible wages and prices?

A

rapid

99
Q

What adjustment process has less need for government intervention?

A

rapid

100
Q

In this adjustment process, episodes of unemployment are short and even necessary

A

rapid adjustment

101
Q

In this adjustment process long periods of unemployment destroy job skills and make future employment more difficult

A

slow adjustment

102
Q

A shift in aggregate demand to the right due to a positive demand shock does what to output and inflation?

A

increases

103
Q

A negative demand shock shifts the Aggregate demand curve where?

A

left

104
Q

A positive demand shock shifts the AD curve where?

A

right

105
Q

A negative supply shock shifts the AS curve where?

A

up

106
Q

A shift in the AS curve up does what to inflation and output?

A

increases inflation

decreases output

107
Q

A permanent negative supply shock shifts the LRAS curve where?

A

left

108
Q

A permanent negative supply shock shifts the AS curve where?

A

up

109
Q

What can occur during health care cost slow down, computerization of business processes, and rapid spread of online use?

A

positive permanent supply shock

110
Q

A permanent positive supply shock shifts LRAS where?

A

right

111
Q

A permanent positive supply shock shifts AS where?

A

down

112
Q

A permanent positive supply shock leads to what?

A

permanent rise in output

permanent decrease inflation

113
Q

Permanent supply shocks affect output and inflation where?

A

short and long run

114
Q

Temporary supply shocks affect output and inflation when?

A

Only in the short run

115
Q

A permanent supply shock that will result in higher prices means there will be an immediate rise in what?

A

inflation

116
Q

One group of economists believes tat business cycle fluctuations result from?

A

permanent supply shocks alone

117
Q

The theory that says business cycle fluctuations result from permanent supply shocks alone is called?

A

real business cycle theory

118
Q

Monetary policy tightening does what to aggregate demand?

A

decreases

119
Q

A decrease in aggregate demand does what to ouput?

A

lowers

120
Q

A decrease in output does what to inflation?

A

decreases

121
Q

These can occur as a result of changes in labor costs or other product costs

A

supply shocks

Economics (5 decks)

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