Term
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Definition
| does not explain why the aggregate demand schedule is negatively sloped with respect to the domestic price level |
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Term
| which of the following real world circumstances existed during the decade of the 1970s that led to the replacement of Keynesian theory with the aggregate demand-aggregate supply model? |
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Definition
| the price level and the unemployment rate were both increasing |
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Term
| which of the following explains the upward sloping segment of the aggregate supply schedule? |
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Definition
| a higher domestic level creates opportunities for additional profits |
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Term
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Definition
| supply creates its own demand |
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Term
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Definition
| if the inflation rate exceeds the rate of interest charged by banks on fixed rate loans, the real rate of interest received by banks is negative |
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Term
| conclusion of Keynesian theory |
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Definition
| market economy can be at equilibrium at any level of GDP |
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Term
| which of the following expenditures categories was not assumed to be autonomous in the Keynesian theory? |
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Definition
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Term
| conclusion of classical theory |
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Definition
| market economy can be in equilibrium only at full employment level of GDP |
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Term
| which demand side discretionary fiscal policy would shift the aggregate demand schedule to the right by the greatest amount? |
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Definition
| a $100 rise in government expenditures with tax collections held constant |
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Term
| aggregate demand schedule |
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Definition
| a rise in the domestic price level will cause a decline in household wealth and consumption expenditures |
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Term
| automatic fiscal stabilizers |
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Definition
| reduce the value of the multipliers associated with the discretionary fiscal policy |
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Term
| an increase in aggregate demand in the classical range of the aggregate supply schedule |
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Definition
| increase price level and no impact on GDP |
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Term
| not an automatic fiscal stabilizer |
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Definition
| the government passes new legislation to build 1000 miles of interstate highways to create new jobs for construction workers |
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Term
| Laffer curve shows relationship between |
|
Definition
| income tax rates and total tax collections |
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Term
| classical theory viewed the aggregate supply schedule for the economy to be |
|
Definition
| vertical at the full employment level of GDP |
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Term
| multiplier effects associated with demand side discretionary fiscal policy |
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Definition
| the value of the tax multiplier is opposite in numerical sign to the multiplier for changes in government expenditures |
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Term
| suppose business firms currently are producing a GDP that is smaller than the amount that households, business firms, government and the rest of the world wish to purchase at the level of production. |
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Definition
| the equilibrium level of GDP is above the current level of GDP |
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Term
| the effect of a rightward shift of the AD schedule on real GDP and the domestic price level is correctly explained as |
|
Definition
| causing an increase in both real GDP and the domestic price level in the intermediate range of the aggregate supply schedule |
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Term
| which would not cause the aggregate supply schedule to shift right? |
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Definition
| a reduction in the domestic price level |
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Term
| not part of the classical theory |
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Definition
| government has a major responsibility to ensure that full employment will occur in a market economy |
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Term
|
Definition
| the GDP gap (full employment GDP less the equilibrium GDP) divided by the aggregate expenditures multiplier |
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Term
| CPI in 2004 has a value of 200 and 260 in 2005 |
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Definition
| the cost of purchasing the fixed market basket of goods increased by 30% between 2004 and 2005 |
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Term
| aggregate supply schedule is upward sloping (rather than horizontal) |
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Definition
| the effectiveness of demand side discretionary fiscal policy to change the level of real GDP would be decreased |
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Term
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Definition
| declining quality of the products included in the fixed basket of goods will cause the CPI to understate actual increases in the cost of living |
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Term
| Laffer curve analysis, reduction in income tax rates |
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Definition
| could either increase or decrease total tax collections |
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Term
| supply side economists, which would be most effective in which the unemployment rate and the price level were rising at the same time? |
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Definition
| government policies to shift the AS schedule downward and to the right |
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Term
| marginal propensity to consume increases |
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Definition
| the tools of discretionary fiscal policy become more effective in shifting the aggregate demand schedule |
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