Macro Midterm part 3 QUESTIONS AND ANSWERS
The following events have occurred at times in the history of the United States:
1. A deep recession hits the world economy
2. The world oil price rises sharply
3. U.S. businesses expect future profits to fall
Explain the effect of each of the following events on aggregate supply and aggregate demand in the
United States.
Event 1
Event 2
Event 3 - CORRECT ANSWER✅✅✅Decrease aggregate demand
Decreases short-run aggregate supply
Decreases aggregate demand
The Fed increases the quantity of money and all other things remain the same.
Explain the effect of the increase in the quantity of money on aggregate demand in the short run.
In the short run, aggregate demand _______. - CORRECT ANSWER✅✅✅increases because interest
rates fall and it is it easier to get a loan to buy homes and large consumer goods
The graph gives a long-run aggregate supply curve and a short-run aggregate supply curve.
Draw a new curve that shows the effect of a rise in the money wage rate. Label it.
With a rise in the money wage rate, ______. - CORRECT ANSWER✅✅✅Picture
How do a decrease in foreign income and a decrease in taxes change aggregate demand?
Aggregate demand _______ when a decrease in foreign income occurs.
Aggregate demand _______ when a decrease in taxes occurs. - CORRECT ANSWER✅✅✅Picture
When does potential GDP increase?
, Potential GDP increases when _______. - CORRECT ANSWER✅✅✅The quantity of capital increases
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand.
Automotive firms in the United States switch to a new technology that raises productivity.
This event _______. - CORRECT ANSWER✅✅✅increases the quantity of real GDP demanded
The U.S. price level rises.
This event _______. - CORRECT ANSWER✅✅✅decreases the quantity of real GDP demanded
Autoworkers agree to a lower money wage rate.
This event _______. - CORRECT ANSWER✅✅✅increases the quantity of real GDP demanded
If the price level and the money wage rate rise by the same percentage, what happens to the quantity of
real GDP supplied?
Along which aggregate supply curve does the economy move?
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP
supplied ______ and there is a movement up along the ______ aggregate supply curve. - CORRECT
ANSWER✅✅✅Does not change; long-run
Choose the correct statement. - CORRECT ANSWER✅✅✅The quantity of real GDP supplied equals
potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Choose the correct statement about the LAS curve. - CORRECT ANSWER✅✅✅The LAS curve is
vertical because potential GDP is independent of the price level.
Wages Rising Faster than Prices
The following events have occurred at times in the history of the United States:
1. A deep recession hits the world economy
2. The world oil price rises sharply
3. U.S. businesses expect future profits to fall
Explain the effect of each of the following events on aggregate supply and aggregate demand in the
United States.
Event 1
Event 2
Event 3 - CORRECT ANSWER✅✅✅Decrease aggregate demand
Decreases short-run aggregate supply
Decreases aggregate demand
The Fed increases the quantity of money and all other things remain the same.
Explain the effect of the increase in the quantity of money on aggregate demand in the short run.
In the short run, aggregate demand _______. - CORRECT ANSWER✅✅✅increases because interest
rates fall and it is it easier to get a loan to buy homes and large consumer goods
The graph gives a long-run aggregate supply curve and a short-run aggregate supply curve.
Draw a new curve that shows the effect of a rise in the money wage rate. Label it.
With a rise in the money wage rate, ______. - CORRECT ANSWER✅✅✅Picture
How do a decrease in foreign income and a decrease in taxes change aggregate demand?
Aggregate demand _______ when a decrease in foreign income occurs.
Aggregate demand _______ when a decrease in taxes occurs. - CORRECT ANSWER✅✅✅Picture
When does potential GDP increase?
, Potential GDP increases when _______. - CORRECT ANSWER✅✅✅The quantity of capital increases
Explain for each event whether it changes the quantity of real GDP demanded or aggregate demand.
Automotive firms in the United States switch to a new technology that raises productivity.
This event _______. - CORRECT ANSWER✅✅✅increases the quantity of real GDP demanded
The U.S. price level rises.
This event _______. - CORRECT ANSWER✅✅✅decreases the quantity of real GDP demanded
Autoworkers agree to a lower money wage rate.
This event _______. - CORRECT ANSWER✅✅✅increases the quantity of real GDP demanded
If the price level and the money wage rate rise by the same percentage, what happens to the quantity of
real GDP supplied?
Along which aggregate supply curve does the economy move?
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP
supplied ______ and there is a movement up along the ______ aggregate supply curve. - CORRECT
ANSWER✅✅✅Does not change; long-run
Choose the correct statement. - CORRECT ANSWER✅✅✅The quantity of real GDP supplied equals
potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Choose the correct statement about the LAS curve. - CORRECT ANSWER✅✅✅The LAS curve is
vertical because potential GDP is independent of the price level.
Wages Rising Faster than Prices
