ECO102H1 Study Guide - Aggregate Demand, Diminishing Returns

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11 Aug 2013

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ECO102H1 Full Course Notes

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An increase/decrease in the price level (p) shifts the ae curve downward/upward. This shift of the ae curve is due to the effect of changes in p on: consumption: According to the life-cycle theory of consumption, households save to accumulate wealth that they can use during their retirement. An unexpected rise in wealth would shift consumption curve up (and saving curve down) since less will be needed for retirement. An increase in p lowers real wealth, reduces the real value of money, and bondholders" perception of their wealth decreases: net exports: An increase in p makes domestic goods relatively more expensive than foreign goods. Nx decreases as p increases (exports decrease and imports increase) The price level (p) and equilibrium income (y) are negatively related to each other. This relationship is expressed by the aggregate demand curve. At any p level, the corresponding y represents the value of the quantity demanded of goods and services.

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

In the Keynesian model

aggregate demand determines real GDP per year.

the short-run aggregate supply curve determines real GDP.

unemployment cannot persist for long periods of time.

the aggregate demand curve determines the price level.

A terrible winter storm causes enormous problems in the

northeastern

part of the United States. This would cause

the short-run aggregate supply curve to shift to the left, but would have no effect on the long-run aggregate supply curve.

both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right.

both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts.

Equilibrium real GDP rises after the dollar strengthened. From this we can conclude that

the increase in aggregate demand was greater than the decrease in aggregate supply.

the decrease in aggregate demand was more than the increase in aggregate supply.

the decrease in aggregate demand was less than the increase in aggregate supply.

the increase in aggregate demand was less than the decrease in aggregate supply.

Saving is

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and serviceswhile savings is the difference between real GDP and disposable income.

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

A permanent reduction in investment spending leads to

a proportional decrease in real GDP.

a more than proportional decrease in real GDP.

a more than proportional increase in real GDP.

a less than proportional decrease in real GDP.

An increase in net exports leads to an increase in real GDP. Further,

consumption spending increases while investment spending decreases.

consumption spending increases but saving does not change.

consumption spending and saving increase.

government spending decreases to offset the increase in net exports.

An increase in aggregate spending that is caused by a factor other than the price level will lead to the

aggregate demand curve shifting to the right.

aggregate supply curve shifting to the right.

aggregate supply curve shifting to the left.

aggregate demand curve shifting to the left.

The marginal propensity to consume is 0.9. The multiplier is

0.9.

1.11.

0.1.

10.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

real GDP increases.

the price level rises

the price level falls.

real GDP decreases.

Other things equal, the lower the total real value of final goods and services demanded in the economy the

more the production possibilities cure shifts to the left.

lower the price level.

higher the price level.

lower the level of endowments.

The long-run aggregate supply curve can be thought of as the

level of output for which real GDP equals nominal GDP.

level of output that the nation is currently producing.

level of real GDP associated with a constant price level.

full-employment level of real GDP.