Economics 1021A/B Lecture 15: Chapter_26

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24 Jan 2016

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The purpose of aggregate supply-aggregate demand model is to explain how real gdp and price level are determined and how they interact. Quanitity of real gdp supplied is total quantity of goods and services balued in constant base year dollars, that firms plan to produce during a given period. Depends on quantity of labour employed, quantity of physical & human capital & state of tech. Quantity of capital and state of tech are fixed. Depend on decisions that were made in the past. Depends on decisions made by households and firms about the supply of and emand for labour. Labour market can be in any one of three states. The quantity of real gdp supplied is potential gdp. Depends on full- employment quantity of labour. Over business cycle, employment fluctuates around full employment and quantity of real gdp supplied fluctuates around potential gdp. Aggregate supply is the relationship between quantity of real gdp supplied and price level.

Related Questions

41.Which of the following is a valid statement about the Keynesian and classical models of the macroeconomy?

A. Fiscal policy will affect output in the Keynesian model, but only the price level in the classical model.

B. The economy adapts quickly to demand shocks under the Keynesian model, but not under the classical model.

C. A sharp decrease in the value of a nation's currency will lead to higher price levels in the Keynesian model, but not in the classical model.

D. Increases in autonomous expenditure will increase aggregate demand in the Keynesian model, but not in the classical model.

E. An increase in the productive capacity of an economy will result in greater output in both the Keynesian and classical models.

42. Suppose the government spends $500M on a project that has absolutely no value to the country. Which statement about this project is correct?

A. If taxes were raised $500M to fund this project, the Keynesian model predicts that this will have no net effect on output in the economy.

B. If the government raised the money for this project by printing $500M in bonds and selling them to the Fed, the effect is exactly the same as if they sold the bonds to households.

C. The project will increase aggregate supply because it will increase the total quantity of goods and services supplied in the economy.

D. If the marginal propensity to save in the economy is equal to 0.25, the Keynesian model predicts that this project will result in a $2000M increase in GDP.

E. Under the assumptions of the classical model, the result of this project will be increased in both the price level and equilibrium GDP.

43. A particular economy has a consumption of $400M, a government deficit of $100M, taxes of $250M, and income of $800M. Which of the following statements must be true?

A. If the investment is zero, there is no foreign trade imbalance.

B. If the trade surplus is $50M, the investment will be equal to $100M.

C. If the capital account surplus is $50M, the investment will be equal to $100M.

D. If the trade surplus is $100M, there will be an investment.

E. None of the above statements is necessarily true.

44. Which piece of information would be least useful in trying to predict the effect of a $700M increase in government spending on equilibrium GDP?

A. marginal propensity to save

B. The slope of the aggregate supply curve

C. Whether taxes are raised to pay for the spending increase

D. The current level of structural unemployment

E. Whether the bonds used to finance the spending were sold to households or to the Fed

45.Which of the statements relating to full employment and full capacity is false?

A. At full employment there is no frictional unemployment; at full capacity, there is no structural unemployment.

B. The full-employment level of output is less than the full capacity level of output.

C. At full employment there is no cyclical unemployment; at full capacity, there is no frictional unemployment.

D. A government spending increase will result in increased output and price levels at full employment, but only increased price levels at full capacity.

E. In the long run, an economy that starts at full capacity will move to full employment.

46. What would be the effect of a law requiring that government spending equal tax revenues in each year?

A. Fiscal policy would be completely eliminated as a tool to control the macroeconomy.

B. Monetary policy would be completely eliminated as a tool to control the macroeconomy.

C. Fluctuations in GDP would become less severe.

D. The government spending multiplier would be effectively set to 1.0.

E. The marginal propensity to consume would be cut in half.

47.The total value of T-bonds, including T-notes and T-bills, in existence at any point in time, is:

A. The federal government spending deficit.

B. The trade deficit.

C. Less than government spending.

D. Necessarily less than GDP.

E. The national debt.

48. Which of the following would be a valid statement about a government plan to eliminate a trade deficit

A. A decrease in the trade deficit will decrease investment in the country.

B. An effective strategy would be to increase the money supply and increase the value of the national currency.

C. An effective strategy would be to increase interest rates and increase the value of the national currency.

D. This could be achieved through dramatically increasing aggregate supply.

E. The increase in net exports will result in a decrease in aggregate demand.

49. Crowding out has the effect(s) of:

A. Reducing the effectiveness of monetary policy if crowding out occurs in financial markets.

B. Decreasing the value of a nationâs currency if the crowding out occurs in financial markets.

C. Increasing the effectiveness of fiscal policy if the crowding out occurs in financial markets and increasing the effectiveness of monetary policy if the crowding out occurs in product markets.

D. Decreasing the effectiveness of fiscal policy if the crowding out occurs in financial markets and decreasing the effectiveness of both fiscal and monetary policy if the crowding out occurs in product markets.

E. Increasing the price of government bonds if the crowding out occurs in financial markets.

50. Which of the following will make crowding out in credit markets more severe?

A. A steep investment demand curve

B. A global credit market

C. Tax increases

D. A steep supply curve in the loanable funds market

E. None of the above

peachmacaw787

Question 1

The law of demand states that there is a direct relationship between supply and demand.

True

False

4 points

Question 2

Equilibrium is a state of balance between supply and demand.

True

False

4 points

Question 3

Goods are scarce for both rich and poor.

True

False

4 points

Question 4

"The big corporations in this country, like ExxonMobil and GM, have deep pockets and need to be hiring more people." This is a positive statement about economic policy.

True

False

4 points

Question 5

The law of supply states that there is a direct relationship between price and quantity demanded.

True

False

4 points

Question 6

In the circular flow model, firms own economic resources, and householdsbuy the manufactured products and services.

True

False

4 points

Question 7

Households play a dual role of providing the factors of production whilepurchasing the goods and services of firms.

True

False

4 points

Question 8

Opportunity cost is the lowest valued benefit that must be sacrificed asthe result of choosing an alternative.

True

False

4 points

Question 9

Scarcity denotes that our desire for a good exceeds the amount that isfreely available from nature.

True

False

4 points

Question 10

Economics is a social science concerned with satisfying man's unlimitedwants with limited resources.

True

False

4 points

Question 11

Joint output of individuals or nations will be maximized when goods areexchanged between parties in accordance with the law of"comparative advantage".

True

False

4 points

Question 12

The production possibilities frontier assumes that the level of technologyvaries when applying the model.

True

False

4 points

Question 13

Excess demand in the market will cause the price of a product to decline.

True

False

4 points

Question 14

Demand is measured on the vertical axis and supply on the horizontalaxis.

True

False

4 points

Question 15

A change in quantity demanded is a movement along the same demandcurve.

True

False

4 points

Question 16

As globalization and world trade proliferates, individual markets withincountries' economies become more competitive.

True

False

4 points

Question 17

Which growth theory compares a subsistence real wage rate to the actual real wage rate?

		Classical growth theory
		Inflation growth theory
		Neoclassical growth theory
		New growth theory

4 points

Question 18

Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ________ equals ________.

		unemployment rate; 25/100 Ã 100
		employment rate; 25/75 Ã 100
		labor force; 75
		labor force; 25/100 Ã 100

4 points

Question 19

Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded:

		increases.
		decreases.
		does not change because there is no change in the money wage rate.
		increases only if the price level also decreases.

4 points

Question 20

GDP can be computed as the sum of:

		all sales that have taken place in an economy over a period of time.
		the total expenditures of consumers and business over a period of time.
		the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time.
		the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.

4 points

Question 21

The real wage rate equals:

		(100 x (money wage rate/price level)
		(100 x (price level/money wage rate)
		(money wage rate x (price level)
		(money wage + (number of hours worked/(price level)

4 points

Question 22

If the CPI was 121.5 at the end of 2007 and 138.3 at the end of 2008, the inflation rate over these two years was:

		10.2 percent.
		13.8 percent.
		12.2 percent.
		16.8 percent.

4 points

Question 23

A movement along the production function is the result of a change in:

		the quantity of labor.
		technology.
		capital.
		interest rates.

4 points

Question 24

All of the following are part of fiscal policy EXCEPT:

		setting tax rates.
		setting government spending.
		choosing the size of the government deficit.
		controlling the money supply.

4 points

Question 25

Along a production possibilities frontier for real GDP and the quantity of leisure time, as leisure time increases, real GDP:

		decreases.
		increases.
		stays the same.
		could increase, decrease or stay the same.

lavenderminnow570

Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

	A	some new products unleash a gale of destruction that drive other new products out of the market.
B		new products unleash a gale of destruction that drives old products out of the market.
C		new products are created by the destruction of capital.
D		the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

		A Qatar
B		United States
C		Japan
D		Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

	A	Developing countries; large proportion; decreases
B		Developing countries; small proportion; increases
C		High-income countries; large proportion; increases
D		High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A		government
B		households
C		banks
D		firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A		Income, production, and employment will continue to fall.
B		Income, production, and employment will begin to rise.
C		Income and production will rise, but employment will continue to fall.
D		Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A		Saving is greater than investment.
B		Investment is greater than saving.
C		Investment is equal to saving.
D		Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A		labor; real GDP; technology
B		capital; real GDP; technology
C		labor; capital; real GDP
D		capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

	A	knowledge; increasing returns to scale; firm
	B	physical; decreasing returns to scale; firm
	C	knowledge; decreasing returns to scale; economy
D		knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A		The British government was committed to upholding private property rights.
B		The British government was able to eliminate arbitrary increases in taxes.
C		The British government was able to more easily seize wealth.
D		Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A		the seventeenth century.
B		the eighteenth century.
C		the nineteenth century.
D		the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A		Economic growth is associated with higher labor productivity growth.
B		Economic growth increases GDP per capita.
C		Economic growth hurts developing countries.
D		Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A		sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B		profits fall less sharply as compared to firms that do not produce durable goods.
C		the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D		there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A		cyclical unemployment has been non-existent.
B		unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C		unemployment falls on average by 2 percentage points 12 months after a recession begins.
D		unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A		a reduction in sales taxes
B		an investment tax credit
C		a reduction in taxes on luxury yachts
D		All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

	A	the equilibrium interest rate will fall.
	B	business investment will fall.
	C	household savings will fall.
	D	None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A		labor force participation
B		the quantity of goods or services that can be produced by one hour of work
C		the working-age population
D		nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A		decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B		increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C		increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D		increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

Economics 1021A/B Lecture 15: Chapter_26

ECON 1021A/B Full Course Notes

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