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Exam 13: Aggregate Demand, Aggregate Supply, and Business Cycles

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Question 51

Multiple Choice

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The self-correcting property of the economy means that output gaps are eventually eliminated by:

A) rising or falling prices.
B) falling prices only.
C) increasing or decreasing potential output.
D) government policy.

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Question 52

Multiple Choice

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Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will shift the ______ curve to the right and generate ______.

A) aggregate demand; a recessionary output gap
B) aggregate supply; a recessionary output gap
C) aggregate demand; an expansionary output gap
D) aggregate supply; an expansionary output gap

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Question 53

Multiple Choice

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When actual output exceeds potential output, there is ______ output gap and the inflation rate will ____.

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) _____ gap and inflation will _____.

For a given inflation rate, if a rise in the stock market makes consumers more willing to spend, then the ______ shifts _____.

Refer to the figure below.The current level of GDP in this economy is ______; the potential level of GDP is ______.

Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except:

A large increase in oil prices is an example of:

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y₁ and inflation rate ₂.The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______.

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation.

Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run.

Refer to the figure below.The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium combination of the price level and output indicated by point ___.

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will generate a(n) _____ gap and inflation will _____.

An increase in the aggregate demand for goods and services will result in an increase in the amount of output firms are willing to produce, and this increase in output is accompanied by:

Starting from long-run equilibrium, a negative inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

An increase in aggregate supply is usually shown by a ______ shift of the AS curve.

Firms suddenly becoming pessimistic about future business prospects is an example of a ______ demand shock, which would shift the AD curve to the ______.

A sudden increase in household wealth is an example of a ______ demand shock, which shifts the AD curve to the ______.

An example of a negative inflation shock is:

The AD curve slopes downward because an increase in ______ causes ______ to fall, which in turn causes real GDP to fall.