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4.Which of the following products is most likely to have a quot;stickyquot; price?
4.Which of the following products is most likely to have a "sticky" price?
A.
wages of a Hollywood star
B.
an ounce of gold
C.
one gallon of gasoline
D.
heavy machinery
5.Which of the following is not a component of aggregate demand?
A.
Consumption
.
B.
Business taxes
.
C.
Federal government expenditures
.
D.
Net exports
6.Because of other economic factors, such as taxes, the multiplier in the United States is
▼
larger than
smaller than
equal to
2.50.
7.The components of aggregate demand and gross domestic product are the same: consumption, investment, government spending and net exports: True or False
8.Higher Gas Prices, Frugal Consumers, and Economic Fluctuations. Suppose gasoline prices increased sharply and consumers became fearful of owning too many expensive cars. As a consequence, they cut back on their purchases of new cars and decided to increase their savings.
Assuming a short-run aggregate supply curve, this behavior shifts the aggregate demand curve to the
A.
right, leading to a large decrease in output and a small decrease in price.
B.
left, leading to a large decrease in output and a small decrease in price.
C.
left, leading to a large increase in output and a small increase in price.
D.
right, leading to a large increase in output and a small increase in price.
9.OIL SUPPLY DISRUPTIONS, SPECULATION AND SUPPLY SHOCKS
APPLYING THE CONCEPTS: Are oil prices increases caused by true shocks to supply?
Economists have long believed that disruptions to oil supplies were the cause of supply shocks for the U.S economy. If this were the case, supply disruptions would be true external "shocks" to the economy. But not all changes in oil prices are necessarily caused by supply disruptions. Oil price increases may be caused by increases in world demand or due to the activities of speculators in the oil market.
How important are actual supply disruptions to oil market for the U.S. economy? Economist Lutz Kilian carefully examined this issue by constructing measures of supply disruptions in oil producing countries, based on a detailed examination of prior trends in demand and specifications in oil contracts. While Kilian did find evidence of some supply disruptions, these only explained a small fraction of the variability of oil prices. In his view, other factors dominated the price movements for oil, even during the time periods that are conventionally associated with supply disruptions.
Speculation in oil markets may be one such factor. Speculators can be countries, firms, or individuals. If speculators believe prices are going to rise in the future, they will buy oil now or, if they own it, sell less into the market. Either action increases the current price of oil. Note that if speculators are on average correct in their assessments, they will smooth out the price of oil over
timelong dash
raising
it now and lowering it later. This can actually benefit the economy. While politicians often complain about speculators, in many cases they may be helping the economy. Of course, speculators can be wrong and make fluctuations in prices worse, but in this case at least some of them will lose money.
Source: In part based on Lutz Killian, "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?" Review of Economics and
Statistics,
May 2008, Vol. 90, No. 2, pp. 216-240.
Related to Application: Oil Supply Disruptions, Speculation and Supply Shocks
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The Role of Expectations and Supply Shocks. Suppose an oil producing country believed that political instability was likely in the future in other parts of the world and prices would rise in the next year.
They can be expected to sell
▼
more
less
today, which would
▼
decrease
increase
the price. This will cause aggregate
A.
supply and demand to increase since more oil revenue will be earned.
B.
supply to decrease since oil is a cost of production.
C.
demand to decrease since oil is a cost of production.
D.
supply and demand to decrease since oil is used by everyone.
10.A negative supply shock temporarily
▼
raises
lowers
output
▼
above
below
full employment and
▼
lowers
raises
prices.
After the
negative
supply shock, real GDP is
▼
higher than
lower than
potential GDP.
This implies that unemployment is ▼
falling
rising ,
driving wages
▼
up
down
.
This results in a
▼
rightward or downward
leftward or upward
shift of the short-run aggregate supply curve.
10.Lack of Credit and Aggregate Demand and Supply. In the 2008 recession, both firms and households had limited access to credit.
This could be both a negative shock to aggregate demand and a negative shock to aggregate supply because when consumers spend less,
A.
the aggregate demand decreases; and the government will spend less decreasing the aggregate supply.
B.
the aggregate demand decreases; and the aggregate supply will fall as borrowing costs increase.
C.
the aggregate supply decreases; and the government will spend less decreasing the aggregate supply.
D.
the aggregate supply decreases; and the aggregate demand will fall as borrowing costs increase.
