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Modern day economists whether Keynesian or classical, believe the aggregate supply curve is upward sloping. They still disagree on how big an effect increasing output has on the price level. Keynesians believe the slope of the AS curve is _____________, whereas classical economists believe the slope is ____________?

Steep and flat

Flat and steep

Flat and steep


True or false. Firms often do not purchase inputs at prices that stay fixed for considerable periods of time.


Firms define decide how much to produce by comparing their selling prices with their costs of production, and production costs depend, among other things, on input prices.


The composite aggregate supply is what in the classical region.



Upward sloping


In the classical region, attempts to expand total real output will only drive up the price level.


True or false. A shift of the aggregate demand curve to the right will have the greatest impact on the price level if the aggregate supply curve is horizontal.


Since the aggregate supply curve is horizontal, there will be no impact on the price level that remains constant.


True or false. The aggregate production function shows how much total real output can be produced by various amounts of labor, given the amount of capital and available technology.


The aggregate production function shows the relationship between the total real output and the inputs available.


The economy growth rate for 2151 is 15% and it's inflation rate is 14.8%. To get to this current situation, what curve shifted and how?

AS increased

AD decreased

AD increased

AS decreased

AD increased

Increasing AD increases both the price level and output.


According to Keynes the government should use its power to ____________ and tax people in order to shift aggregate demand to the right, __________ output and employment.

Spend and decreasing

Spend and increasing

Save and decreasing

Safe and increasing

Spend and increasing

According to Keynes, through spending and taxing the government can affect the aggregate demand curve and the government should increase aggregate demand to increase output and employment.


The total of all planned expenditures in the entire economy is

1 aggregate demand

2 the open economy effect

3 aggregate supply

4 long run aggregate supply


The aggregate demand curve is the total planned expenditures in an economy.


Using the production function, what happens to employment when the new energy source begins to be used in production?

Output increases and employment increases

Output increases and employment decreases

Output decreases and employment decreases

Output decreases and employment increases

Output increases and employment increases

New resources increase output. Since technology has not changed, more workers will be needed.


True or false. If the price level increases, net exports, assets, government spending and household wealth all decrease.


When the price level increases the economy will move up and to the left on the aggregate demand curve.


True or false. The classical theory claims that most government economic policies are ineffective, ill-timed, or downright harmful, and the market system works best in macroeconomics, as well as microeconomics, when left alone.


Classical economists assumed that the market is self regulating and that no government intervention is necessary.


True or false. Classical theory follows laissez faire and Says' law, so they believe there is no role for government to play in the economy.



True or false. Equilibrium values of the price level and real output is determined by the intersection of aggregate supply and aggregate demand.



The relationship between price level and aggregate supply _______________.

Is positive

Is negative

Varies from time to time

Depends upon a nation's economy

Is positive

At higher price levels across the economy, firms expect that they can sell their final products at higher prices.


True or false. Classical theory thinks government action will not work because of time lags making it hard for the government to successfully time policies to the business cycle.


It takes time for the government to recognize a problem in the economy; more so than it does to create a legislative policy to deal with it and then to enact the policy. By the time that is accomplished, the economy will be at a different place in the business cycle and need different policies.


True or false. A family spending on electricity is a consumer's expenditure.


Money that is spent on maintaining a household is considered a consumers expenditure. Examples could include food, gas, and clothing.


If aggregate demand and nominal GDP increases while the price level is constant one would conclude that the

Aggregate supply curve is horizontal

Economy is already at full employment

Aggregate demand curve is vertical

Aggregate supply curve is upward sloping

Aggregate supply curve is horizontal

Graphically, if aggregate supply is horizontal, shifts in aggregate demand can only affect the output level.


True or false. A decrease in net exports spending caused by an appreciation of the US dollar would cause the aggregate demand curve to shift to the left.


Net exports are one of the components of aggregate demand. If they decrease, aggregate demand will shift left.


According to the classical model, the income generated by production is

Enough to purchase all the goods and services produced

Enough to meet the needs of everyone in society

Insufficient to purchase all the goods and services produced

Fully spent on savings

Enough to purchase all the goods and services produced.

According to classical economists, production is the source of demand.


A Keynesian economist completely follows Keynes' belief about the shape of the aggregate supply curve. She vocally argues that the AS is

Mildly upward sloping

Sharply upward sloping




Keynes believe that increasing production would have no effect on the price level because of unused resources, especially labor.


What is a possible reason for AD to increase?

New technology

Increase in imports

Decrease in consumption

Increase in investment

Increase in investment


One possible result of a fall in aggregate demand coupled with a stable short run aggregate supply is a


Economic expansion

Rise in the stock market

Increase in employment


When aggregate demand decreases, the graph shows a recessionary gap in which employment is below its natural level


The aggregate demand curve is


Upward sloping

Downward slope in


Downward sloping

There is a negative relationship between the price level in the amount of expenditures demanded by each sector in the economy.


True or false. The slope of the aggregate supply curve depends on how costs change when firms change the level of production or quantity of output supplied.


When costs go up as firms attempt to increase output the AS curve is upward sloping.


Classical economists thought that the economy tended naturally toward for what.





The composite aggregate supply is what in the Keynesian region?



Upward sloping


In the Keynesian region, output can be increased without driving up prices.


Which of the following is an example of consumption expenditure, which is one of the components of AD?

1 Production of cell phones that are ship to Europe and sold to foreign buyers

2 Government spending on building public schools

3 The company's purchases of capital goods, like machines and tools

4 A family's purchase of a durable good, such as a new refrigerator


Consumption expenditure include spending on consumer durables as well as services and nondurables.


As the price level rises, the purchasing power of financial assets owned by households



Stays the same


If the prices increase, purchasing power is reduced.


If the aggregate supply curve shifts to the right and the aggregate demand curve shifts to the left, what happens to the price level and real output?

The price level rises, and real output rises

The price level rises, but the effect on real output cannot be determined

The price level rises, in real output falls

The price level falls, but the effect on real output cannot be determined

The price level falls, but the effect on real output cannot be determined.

If both curves shift in opposite directions, in general, we cannot determine the real output without knowing the extent of the shifts.


And aggregate supply curve shifts to the _______________ when any non-price-level factor decreases the total cost of production.