ECN 204 Lecture Notes - Lecture 7: Aggregate Demand, Aggregate Supply, Demand Curve

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10 Dec 2017

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Interest rate effect: p goes up, demand for more money increases, interest rate up, cost of borrowing up, spending down, demand output falls, foreign trade effect. Increase in p makes our good more expensive. Less transportation projects: net export spending, national income abroad, exchange rates, dollar depreciation/appreciation. Aggregate supply: schedule/curve showing the relationship between the price level of output and amount of real domestic output that firms in the economy produce, as depends on 3 time horizons. Immediate short run: the short run, the long run, as in immediate short run. Input prices: domestic factor prices, price of imported resources, productivity, legal-institutional environment, business taxes and subsidies (tax increases lowers as/subsidies increase, as does too, government regulation. Equilibrium in the ad-as model: equilibrium occurs at the price level that equalizes the amount of real output demanded and supplied, at the intersection of ad and as, equilibrium price level, equilibrium real output.

Related Questions

14) Globalization refers to

A) the process of establishing a common world currency.

B) the willingness of individuals within a given country to share knowledge.

C) the process of countries becoming more open to foreign trade and investment.

D) the reduction in growth rates of real GDP per capita as a result of trade with foreign

countries.

15) According to a study by economists Raymond Fisman and Edward Miguel, as the level of corruption in a country increases,

A) so does the number of parking violations by the country's United Nations delegates.

B) so does the size of the country's population.

C) the levels of foreign direct investment and foreign portfolio investment decrease.

D) the levels of real GDP per capita and real income per capita increase.

16) Which of the following best describes the "wealth effect"?

A) When the price level falls, the real value of household wealth falls.

B) When the price level falls, the nominal value of household wealth falls.

C) When the price level falls, the nominal value of household wealth rises.

D) When the price level falls, the real value of household wealth rises.

17) The "interest rate effect" can be described as an increase in the price level that raises the interest 17) rate and chokes off

A) government spending.

B) government spending and unplanned investment.

C) investment and consumption spending.

D) net exports.

18) Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Decreases in the price level raise the interest rate and increase consumer spending.

B) Decreases in the price level raise the interest rate and increase investment spending.

C) Decreases in the U.S. price level relative to the price level in other country's lower net exports.

D) Decreases in the price level to raise real wealth and increase consumer spending.

19) Higher personal income taxes

A) increase in aggregate demand.

B) increase disposable income.

C) decrease aggregate demand.

D) both B and C

20) If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.

B) This will move the economy down along a stationary aggregate demand curve.

C) This will shift the aggregate demand curve to the left.

D) This will shift the aggregate demand curve to the right.

21) How do lower taxes affect aggregate demand?

A) They increase disposable income, consumption, and aggregate demand.

B) They reduce disposable income, consumption, and aggregate demand.

C) they increase corporate investment and aggregate demand.

D) They increase aggregate supply and thus increase aggregate demand as well.

sangriagoat830

1) If the economy was experiencing a severe recession, which of the following combinations of monetary and fiscal policy actions would be most appropriate?

a. a decrease in the reserve requirement coupled with an increase in taxes

b. the sale of government securities by the Fed coupled with an increase in the level of government spending.

c. the purchase of government securities by the Fed coupled with a decrease in the level of government spending.

d. the purchase of government securities by the Fed coupled with a tax reduction

e. an increase in the reserve requirement coupled with a tax reduction

f. the purchase of government securities by the Fed coupled with a tax increase

2) Many years ago, the traditional mortgage loan structure specified
A. a down payment of 20%.
B. an initial loan-to-value ratio of 100%.
C. a variable interest rate.
D. all of the above.

3) Unlike the traditional mortgage amortization schedule, "negative-amortization" mortgages permit the
A. mortgage payments to exceed the accrued interest during the early years of the mortgage.
B. principal payments to grow at a constant rate during the early years of the mortgage.
C. value of the house to depreciate during the early years of the mortgage.
D. outstanding balance to increase over a part of the life of the mortgage.

4) The traditional mortgage amortization schedule specifies a monthly payment that is
A. increasing over the life of the mortgage.
B. decreasing over the life of the mortgage.
C. constant over the life of the mortgage.
D. first increasing, then decreasing, over the life of the mortgage.

5) The "interest-only" mortgage typically converts later to a
A. traditional mortgage with a higher payment.
B. traditional mortgage with a lower payment.
C. "negative-amortization" mortgage with a lower payment.
D. "exotic" mortgage with a lower payment.

6) "Exotic" mortgages became popular in part because they allow someone of
A. means to get into a home they would easily have been able to afford.
B. modest means to get into a home they might otherwise not have been able to afford.
C. modest means to build more equity in their home than a traditional mortgage would allow.
D. modest means to build their credit score by proving they could make challenging payments.

7) Other things equal, increasing home prices tend to
A. force homeowners to spend less than they earn.
B. allow homeowners to spend more than they earn.
C. leave homeowners' ability to spend unaffected.
D. increase the likelihood that homeowners will default on their mortgages.

8) If homeowners purchased a $250,000 home with a zero-down, interest-only mortgage, and the value of the home subsequently fell to $200,000, in order to sell the house and move to another city, the homeowners would be required at closing to pay (in addition to the proceeds from the home sale)
A. nothing.
B. $50,000.
C. any transaction costs and real estate fees.
D. $50,000 plus any transaction costs and real estate fees.

9) Home price escalation in the U.S. during 2005 fueled booms in
A. Iraq and Afghanistan
B. stocks of dot com startups in Silicon Valley and U.S. government bonds
C. home building and home equity lines of credit
D. mortgage foreclosures and home demolition

10) The stimulus package proposed by the Bush Administration in early 2008 relied upon

A. a permanent increase in personal income tax rates
B. a temporary surtax added to existing personal income tax rates
C. making permanent the 2003 income tax rate cuts, as well as tax rebates to taxpayers
D. a requirement that any children claimed as dependents have social security numbers

11) The stimulus plan adopted in 2009 by newly-elected President Obama consisted of
A. only tax cuts
B. only spending increases on newly-created federal programs
C. only attempts to shore up Medicaid, welfare and unemployment programs
D. roughly equal tax cuts and spending increases, with additional spending to shore up existing federal programs

12) The main effect on the economy of the financial sector crisis in late 2008 was
A. reduced aggregate demand
B. increased aggregate demand
C. reduced aggregate supply
D. increased aggregate supply

13) If not corrected, the financial sector crisis of late 2008 would have tended to
A. increase both Real GDP and the general price level
B. increase Real GDP and lower the general price level
C. lower Real GDP and increase the general price level
D. lower both Real GDP and the general price level

14) Monetary policy designed to counteract a reduction in aggregate demand might include
A. a reduction in the money stock
B. a reduction in short-term interest rates
C. increased government infrastructure spending
D. an increase in individual income tax rates

ECN 204 Lecture Notes - Lecture 7: Aggregate Demand, Aggregate Supply, Demand Curve

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