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macroeconomics
Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
An increase in consumer confidence would tend to _____________ consumption spending.
Either lower interest rates or lower household debt would tend to _____________ autonomous consumption.
A higher interest rate today tends to make items purchased on credit _____________ expensive and _____________ expenditures on those items.
A(n) _____________ in real wealth would decrease autonomous consumption.
The _____________ factors affecting consumption are those that do not depend on income.
_____________ spending is the largest component of the demand for final goods and services.
In the simple Keynesian model, we assume that the price level is _____________ as output changes.
Keynes believed that _____________ was the critical determinant of the overall level of economic activity.
Which of the following statements is true?a. The classical short-run aggregate supply curve gets steeper as real output increases.b. The Keynesian short-run aggregate supply curve gets steeper as real output increases.c. The classical long-run aggregate supply curve gets steeper as real output
“In the long run, both wages and prices adjust freely to changes in demand and supply, and the economy will be at its full-employment level of real output.”a. Classical economists, but not Keynesian economists, would accept this statement.b. Keynesian economists, but not classical economists,
If the economy was operating on a completely flat segment of the short-run aggregate supply curve, an increase in aggregate demand woulda. increase real output and increase the price level.b. increase real output and decrease the price level.c. decrease real output and increase the price level.d.
An unexpected increase in aggregate demand willa. increase real wages in the short run but not the long run.b. increase real wages in the short run and long run.c. decrease real wages in the short run but not the long run.d. decrease real wages in the short run and long run.
Which of the following can contribute to slowing the adjustment to a recessionary gap?a. efficiency wagesb. the minimum wagec. menu costsd. all of the abovee. b andc, but not a
During the self-correction process after a fall in aggregate demand,a. the price level increases and real output increases.b. the price level increases and real output decreases.c. the price level decreases and real output increases.d. the price level decreases and real output decreases.
Starting from long-run equilibrium, an increase in aggregate demanda. causes an inflationary gap.b. results in a lower price level.c. increases unemployment.d. does all of the above.e. does b andc, but not a.
A sharp fall in oil prices will cause a(n) _____________; a sudden increase in the wages demanded by workers will cause a(n) _____________.a. recessionary gap; inflationary gapb. recessionary gap; recessionary gapc. inflationary gap; inflationary gapd. inflationary gap; recessionary gap
In a stagflation situation,a. unemployment increases and the price level increases.b. unemployment increases and the price level decreases.c. unemployment decreases and the price level increases.d. unemployment decreases and the price level decreases.
In the short run, demand-pull inflationa. increases both unemployment and the price level.b. increases unemployment but not the price level.c. increases the price level but not unemployment.d. decreases unemployment and increases the price level.
If real output is currently less than the natural level of real output, a decrease in aggregate demand willa. make the current inflationary gap larger.b. make the current inflationary gap smaller.c. make the current recessionary gap larger.d. make the current recessionary gap smaller.
Which of the following could begin an episode of demand-pull inflation?a. an increase in consumer optimismb. a faster rate of economic growth for a major trading partner countryc. expectations of higher rates of return in investmentd. any of the abovee. none of the above
When a recessionary gap occurs,a. real output exceeds the natural level of output, and unemployment exceeds its natural rate.b. real output exceeds the natural level of output, and unemployment is less than its natural rate.c. real output is less than the natural level of output, and unemployment
Starting from long-run equilibrium, an increase in aggregate demand will causea. an inflationary gap in the short run.b. a recessionary gap in the short run.c. an inflationary gap in the short run and long run.d. a recessionary gap in the short run and long run.e. neither an inflationary nor a
Where SRAS and AD currently intersect at a real output level greater than the natural level of real output,a. it is a short-run equilibrium, and real output will tend to fall from its current level as it adjusts to long-run equilibrium.b. it is a short-run equilibrium, and real output will tend to
When SRAS and AD intersect at the natural level of real output, it isa. a short-run equilibrium and a long-run equilibrium.b. a short-run equilibrium but not necessarily a long-run equilibrium.c. just a short-run equilibrium.d. not necessarily either a short-run equilibrium or a long-run
A recession could result froma. a decrease in aggregate demand.b. an increase in long-run aggregate supply.c. an increase in aggregate demand.d. an increase in short-run aggregate supply.e. none of the above.
Cost-push inflation occurs whena. the aggregate demand curve shifts right at a faster rate than short-run aggregate supply.b. the short-run aggregate supply curve shifts left, while aggregate demand is fixed.c. the aggregate demand curve shifts left and aggregate supply is fixed.d. the short-run
Assuming a constant level of aggregate demand, the short-run effects of an adverse supply shock includea. an increase in the price level and a decrease in real output.b. an increase in the price level and an increase in real output.c. a decrease in the price level and an increase in real output.d.
Inflation that occurs as a result of a decrease in aggregate supply is calleda. cost-push.b. demand-pull.c. inflationary push.d. none of the above.
When the price of oil experiences a temporary sharp increase, which curve(s) will shift left?a. SRASb. LRASc. neither SRAS nor LRASd. both SRAS and LRAS
A year of unusually good weather for agriculture woulda. increase SRAS but not LRAS.b. increase SRAS and LRAS.c. decrease SRAS but not LRAS.d. decrease SRAS and LRAS.
A temporary positive supply shock will shift ___________; a permanent positive supply shock will shift ___________.a. SRAS and LRAS right; SRAS and LRAS rightb. SRAS but not LRAS right; SRAS and LRAS rightc. SRAS and LRAS right; SRAS but not LRAS rightd. SRAS but not LRAS right; SRAS but not LRAS
Which of the following could be expected to shift the short-run aggregate supply curve upward?a. a rise in the price of oilb. a natural disasterc. wage increases without increases in labor productivityd. all of the above
Any permanent increase in the quantity of any of the factors of production—capital, land, labor, or technology—available will causea. the SRAS to shift to the left and LRAS to remain constant.b. the SRAS to shift to the right and LRAS to remain constant.c. both SRAS and LRAS to shift to the
An unusual series of rainstorms washes out the grain crop in the upper plains states, severely curtailing the supply of corn and wheat, as well as soybeans. What effect would this situation have on aggregate supply?a. It would shift the SRAS left, but not the LRAS.b. It would shift both the SRAS
How will an increase in money wages affect the short-run aggregate supply curve?a. It will shift left (a decrease in short-run aggregate supply).b. It will shift left (an increase in short-run aggregate supply).c. It will shift right (a decrease in short-run aggregate supply).d. It will shift right
An increase in input prices causesa. the short-run aggregate supply curve to shift outward, which means the quantity supplied at any price level declines.b. the short-run aggregate supply curve to shift inward, which means the quantity supplied at any price level declines.c. the short-run aggregate
The short-run aggregate supply curve will shift to the left, other things being equal, ifa. energy prices fall.b. technology and productivity increase in the nation.c. a short-term increase in input prices occurs.d. the capital stock of the nation increases.
Which of the following would shift the long-run aggregate supply curve if it changed?a. the level of capital in the economyb. the amount of land in the economyc. the amount of labor in the economyd. the technology in the economye. any of the above
In the short run, a decrease in the price levela. increases output prices relative to input prices.b. increases the profit margins of many producers.c. decreases RGDP supplied.d. decreases unemployment rates.e. does none of the above.
The text’s explanation of the misperception effect for an upward-sloping short-run aggregate supply curve is based ona. falling profit margins as the price level rises.b. rising costs of production as the price level rises.c. fixed-wage labor contracts.d. the fact that producers may be fooled
The profit effect is explained in the text as follows:a. When the price level decreases, output prices rise relative to input prices (costs), raising producers’ short-run profit margins.b. At equilibrium prices, when costs rise, profit margins are able to float with them and be passed along.c.
The short run isa. a time period in which the prices of output cannot change but in which the prices of inputs have time to adjust.b. a time period in which output prices can change in response to supply and demand but in which all input prices have not yet been able to completely adjust.c. a time
What is the typical response of firms to an increase in the price of what they sell, for given input prices?a. an increase in outputb. an increase in hiring factors of productionc. an increase in the profit level of firmsd. an increase in employment in the industrye. all of the above
If the price level rises, what happens to the level of real GDP supplied?a. It will increase in both the short run and long run.b. It will increase in the short run but not in the long run.c. It will decrease in both the short run and long run.d. It will decrease in the short run but not in the
If the price level rises, what will happen to the quantity of RGDP produced along the long-run aggregate supply curve?a. It will increase.b. It will usually increase, but not always.c. Nothing will happen to it.d. It will decrease.e. It will usually decrease, but not always.
The short-run aggregate supply curve slopesa. downward because firms can sell more, and hence, will produce more when prices are lower.b. downward because firms find it costs less to purchase labor and other inputs when prices are lower, and hence they produce more.c. upward because when the price
If exports increased and imports decreased,a. AD would decrease.b. AD would increase.c. AD would be unaffected.d. AD could either increase or decrease.
If exports and imports both decrease, but exports decrease more than imports,a. AD would decrease.b. AD would increase.c. AD would be unaffected.d. AD could either increase or decrease.
What would happen to aggregate demand if the federal government increased military purchases and state and local governments decreased their road-building budgets at the same time?a. AD would increase because only federal government purchases affect AD.b. AD would decrease because only state and
An increase in consumption, combined with an increase in exports, would have what effect on aggregate demand?a. AD would increase.b. AD would decrease.c. AD would stay the same.d. AD could either increase or decrease, depending on which change was of greater magnitude.
An increase in government purchases, combined with a decrease in investment, would have what effect on aggregate demand?a. AD would increase.b. AD would decrease.c. AD would stay the same.d. AD could either increase or decrease, depending on which change was of greater magnitude.
A massive increase in interstate highway construction will affect aggregate demand through which sector? Will this change increase or decrease aggregate demand?a. investment, increaseb. government purchases, increasec. government purchases, decreased. consumption, decrease
Which of the following will cause consumption and, as a result, aggregate demand to decrease?a. a tax increaseb. a fall in consumer confidencec. reduced stock market wealthd. rising levels of consumer debte. all of the above
An economic bust or severe downturn in the Japanese economy will likely result in a(n)a. decrease in U.S. exports and U.S. aggregate demand.b. increase in U.S. exports and U.S. aggregate demand.c. decrease in U.S. imports and U.S. aggregate demand.d. increase in U.S. imports and U.S. aggregate
A decrease in the U.S. price level willa. increase U.S. exports.b. increase U.S. imports.c. increase RGDP demanded in the United States.d. do both a and c.e. do both b and c.
Which of the following will not decrease when the price level falls?a. money demandb. the real interest ratec. the real level of investmentd. a and be. b and c
Which of the following will result as part of the interest rate effect when the price level rises?a. Money demand will increase.b. Interest rates will increase.c. The dollar amount of investment will decrease.d. A lower quantity of real GDP will be demanded.e. All of the above will result.
Which of the following helps explain the downward slope of the aggregate demand curve?a. the real wealth effectb. the interest effectc. the open economy effectd. all of the abovee. none of the above
What is the open economy effect?a. If prices of the goods and services in the domestic market rise relative to those in global markets as a result of a higher domestic price level, consumers and businesses will buy less from foreign producers and more from domestic producers.b. People are allowed
As the price level increases, interest rates ____________, investments ____________, and the quantity of RGDP demanded ____________.a. decrease; increase; decreasesb. increase; increase; decreasesc. decrease; decrease; increasesd. decrease; increase; increasese. increase; decrease; decreases
As the price level decreases, real wealth ____________, purchasing power ____________, and the quantity of RGDP demanded ____________.a. increases; decreases; increasesb. increases; increases; increasesc. decreases; decreases; decreasesd. decreases; decreases; increasese. increases; decreases;
According to the real wealth effect, if you are living in a period of falling price levels on a fixed income (that is not indexed), the cost of the goods and services you buy ____________ and your real income ____________.a. decreases; decreasesb. increases; increasesc. decreases; remains the
As the price level increases, other things being equal,a. aggregate demand decreases.b. the quantity of real gross domestic product demanded increases.c. the quantity of real gross domestic product demanded decreases.d. aggregate demand increases.e. both a and c occur.
The aggregate demand curvea. is negatively sloped.b. demonstrates an inverse relationship between the price level and real gross domestic product demanded.c. shows how real gross domestic product demanded changes with the changes in the price level.d. All of the above are correct.
If our exports of final goods and services increase more than our imports, other things being equal, aggregate demand willa. increase.b. be negative.c. decrease by the change in net exports.d. stay the same.e. do none of the above.
If private consumption in the United States were 67 percent of GDP, investment were 16 percent, government purchases were 13 percent, exports were 12 percent, and imports were 8 percent, net exports would be equal to ____________ percent of GDP.a. 4b. 4c. 20d. 20e. none of the above
Investment (I) includesa. the amount spent on new factories and machinery.b. the amount spent on stocks and bonds.c. the amount spent on consumer goods that last more than one year.d. the amount spent on purchases of art.e. all of the above.
Empirical evidence suggests that consumption ____________ with any ____________.a. decreases; increase in incomeb. decreases; tax cutc. increases; decrease in consumer confidenced. increases; increase in incomee. Both a and b are true.
Aggregate demand is the sum of ____________.a. C I Gb. C I G Xc. C I G (X M)d. C I G (X M)
A reduction in personal income taxes, other things being equal, willa. leave consumers with less disposable income.b. decrease aggregate demand.c. leave consumers with more disposable income.d. increase aggregate demand.e. do both c and d.
The largest component of aggregate demand isa. government purchases.b. net exports.c. consumption.d. investment.
The degree of wage and price flexibility increases with the extent of excess capacity in the Keynesian model. true or false.
The extended high unemployment rate in the Great Depression is inconsistent with the conclusions of classical economists. true or false.
Since real output can exceed potential real output only for a short period of time, unemployment can remain below the natural rate of unemployment only for a short period of time. true or false.
It is possible for actual real GDP to remain above potential real GDP for a long period of time. true or false.
Historically, the first two primary approaches to macroeconomics were the classical school and the Keynesian school. true or false.
In the simple Keynesian model, the price level does not decrease as real output falls in the short run. true or false.
On the flatter part of a short-run aggregate supply curve, a decrease in aggregate demand will decrease real output and not change the price level very much. true or false.
The AD/AS model is a precise tool for analyzing the economy. true or false.
When aggregate demand increases, workers’ and input suppliers’ purchasing power falls in the short run; but input suppliers’ purchasing power is restored at a higher price level in the long run. true or false.
If the economy is currently in a recessionary gap, with output less than potential output, the price level is higher than workers anticipated. true or false.
Downward wage stickiness may lead to prolonged periods of recession in response to decreases in aggregate demand by making the economy’s adjustment mechanism slower. true or false.
In a recession, unemployed workers and other input suppliers will bid down wages and prices, and the resulting reduction in production costs shifts the short-run aggregate supply curve to the right. true or false.
A fall in AD would reduce real output and the price level and increase unemployment in the short run—a recessionary gap. true or false.
Holding AD constant, falling oil prices would lead to lower prices, lower output, and lower rates of unemployment. true or false.
Starting with the economy initially at full-employment equilibrium, a sudden increase in oil prices would result in a recessionary gap. true or false.
The primary culprits responsible for the leftward shift in SRAS in the 1970s were oil price decreases. true or false.
A leftward shift in the aggregate supply curve can cause cost-push inflation. true or false.
When an increase in AD causes an inflationary gap in the short run, the only long-run difference from the initial equilibrium is the new, higher price level. true or false.
In response to an inflationary gap in the short run, real wages and other real input prices will tend to rise. true or false.
Short-run real output beyond potential output (and employment beyond full employment) cannot be sustained in the long run. true or false.
The economy can never operate beyond its potential output. true or false.
As long as AD is increasing more rapidly than LRAS, the economy will tend toward both inflation and economic growth.
Demand-pull inflation causes the prices of the goods producers sell to rise faster than the costs of the inputs they use in production. true or false.
Demand-pull inflation causes a recessionary gap. true or false.
When short-run equilibrium occurs beyond the economy’s level of potential output, it results in an expansionary gap.
A change in aggregate demand will change RGDP in the short-run equilibrium, but not in the long run. true or false.
Short-run equilibrium can change only when the short-run aggregate supply curve shifts. true or false.
In long-run equilibrium, the economy operates at full employment, regardless of the level of the aggregate demand curve. true or false.
Adverse supply shocks can increase the costs of production, shifting SRAS to the left; but once the temporary effects of these disasters have been felt, no appreciable change in the economy’s productive capacity occurs, so LRAS doesn’t shift as a result. true or false.
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