econs 104 with part 2

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1. A fall in the tax rate on capital will cause the aggregate expenditure curve to shift up and the aggregate demand curve to shift to the left, all else constant. T/F

2.One reason that the aggregate demand curve slopes downward is that when prices rise, say in the US, the relative price of imports fall and thus, US citizens substitute away from domestically produced goods toward imported goods and thus, GDP in the US will fall (all else constant). T/F

3. Suppose the value of the US dollar changes from $1 = 1.2 euros to $1 = 1.30 euros. This being the case, imports from the US to Europe, have become more expensive to European citizens, all else constant. T/F

4. One reason the aggregate demand curve slopes downward is due to the fact that if the price level falls, real money balances rise, all else constant, interest rates will fall causing an increase in consumption and investment. T/F

5.Assuming that natural gas for firm X is an important input to the production process, an increase in the availability of natural gas that lowers the price of natural gas, will result in a leftward shift of firm X's supply curve. T/F

6. According to the lecture on the cyclical properties of the aggregate supply curve, I argued that aggregate demand side policy works better, in terms of influencing output, when the economy is operating at near full employment output relative to when the economy is operating at levels of output well below full employment. T/F

7. If labor markets become “loose” and wages fall, all else constant, the short run aggregate supply curve will shift to the left. T/F

8. The more 'sticky' nominal wages and other input costs are, the steeper the slope of the aggregate supply curve and therefore, the less effective demand side policies in terms of effecting real output. T/F

9. If the US economy is growing faster that the rest of the world, then we would expect a surge in US exports. T/F

10. Suppose that expected inflation is 5% and thus, nominal wages rise, along with all other input prices by 5%. Suppose also, that actual inflation over this period was only 2%. In terms of the behavior of the short-run aggregate supply curve, it would shift up given the expectations of higher inflation and then shift downward to adjust for the actual rate of inflation. T/F

11. The more sensitive consumption is to real wealth, the steeper the aggregate demand curve. T/F

12. During the Great Recession, we argued that the aggregate expenditure curve shifted downward and the short-run aggregate supply curve and the aggregate demand both shifted to the left. T/F

13. Anything that shifts the investment demand curve to the right will also shift the aggregate demand curve to the right. T/F

14. The Obama administration in 2013 let a tax holiday expire which effectively increases income taxes for all workers who pay into social security. The effect of this increase in taxes, all else constant, would shift the consumption function down, the aggregate expenditure curve down, and the short-run aggregate supply curve to the left. T/F

15. Given that the working age population is shrinking in Japan, our discussion about the determinants of the potential growth rate of the economy suggests that this demographic reality would lower the potential growth rate of the economy for Japan, all else constant. T/F

16. One reason the short-run aggregate supply curve slopes upward is due to the 'stickiness' of input prices relative to output prices. We saw this in the plastering example when we let output prices rise and kept nominal wages constant. This being the case, the firm's profit maximizing output raises with the rise in prices, all else constant. T/F

17. According to our discussion about the cyclicality of the aggregate supply curve, the closer the economy is to potential output, the more Keynesian the world and thus, the more effective aggregate demand side policies are in terms of effecting real GDP. T/F

18. If output prices rise without the nominal wage rising, then real wages rise and workers are willing to work more. This is one of the main reasons that the short-run aggregate supply curve slopes upward. T/F

19. When we discussed the stagflation of the 1970s, we argued that policymakers should have acted more aggressively with expansionary policies the fight the recession that occurred during that time. T/F

20. The more flexible wages and prices, the steeper the short-run aggregate supply curves. In fact, if prices and wages (and other inputs costs) are perfectly flexible then we are in a 'classical' world, where the short-run aggregate supply curve is vertical. T/F

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