Question 1

According to the international trade effect, holding everything else unchanged,

Accepted Answer

A)  an increase in net exports shifts the aggregate demand curve to the right. 
B)  an increase in the domestic price level reduces net exports leading to a movement along the aggregate demand curve. 
C)  an increase in the exchange rate shifts the aggregate demand curve to the right. 
D)  an increase in the price level of foreign goods reduces imports leading to a movement along the domestic economy's aggregate demand curve. 
A)  an increase in net exports shifts the aggregate demand curve to the right. 
B)  an increase in the domestic price level reduces net exports leading to a movement along the aggregate demand curve. 
C)  an increase in the exchange rate shifts the aggregate demand curve to the right. 
D)  an increase in the price level of foreign goods reduces imports leading to a movement along the domestic economy's aggregate demand curve.

Question 2

Figure 7-4  
-Refer to Figure 7-4. For the economy represented in the figure,

Accepted Answer

A)  the real wage rate is higher than full-employment real wage. 
B)  the real wage rate is lower than full-employment real wage 
C)  the nominal wage rate is higher than full-employment nominal wage. 
D)  the nominal wage rate is higher than full-employment nominal wage 
A)  the real wage rate is higher than full-employment real wage. 
B)  the real wage rate is lower than full-employment real wage 
C)  the nominal wage rate is higher than full-employment nominal wage. 
D)  the nominal wage rate is higher than full-employment nominal wage

Question 3

Which of the following will increase the aggregate quantity of output supplied?

Accepted Answer

A)  An increase in input prices 
B)  An increase in the average price level 
C)  A technological advancement 
D)  An increase in net exports 
A)  An increase in input prices 
B)  An increase in the average price level 
C)  A technological advancement 
D)  An increase in net exports

Question 4

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Accepted Answer

A)  real GDP only. 
B)  the price level only. 
C)  real GDP and the price level. 
D)  potential output. 
A)  real GDP only. 
B)  the price level only. 
C)  real GDP and the price level. 
D)  potential output.

Question 5

Wage and price stickiness

Accepted Answer

A)  gives rise to a vertical long-run aggregate supply curve. 
B)  gives rise to a vertical short-run aggregate supply curve. 
C)  creates a surplus or a shortage of real GDP. 
D)  prevents the economy from producing its potential level of real GDP. 
A)  gives rise to a vertical long-run aggregate supply curve. 
B)  gives rise to a vertical short-run aggregate supply curve. 
C)  creates a surplus or a shortage of real GDP. 
D)  prevents the economy from producing its potential level of real GDP.

Question 6

Figure 7-2  
-Refer to Figure 7-2. If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

Accepted Answer

A)  $6,481 billion 
B)  $7,000 billion 
C)  $7,560 billion 
D)  cannot be determined from the information given 
A)  $6,481 billion 
B)  $7,000 billion 
C)  $7,560 billion 
D)  cannot be determined from the information given

Question 7

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Accepted Answer

A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level. 
A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level.

Question 8

The aggregate demand curve slopes downward 
I. for the same reasons that an ordinary demand curve does.
II. in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption.
III. because as the price level falls, the net export component of aggregate demand increases.

Accepted Answer

A)  I, II, and III 
B)  II and III 
C)  II only 
D)  III only 
A)  I, II, and III 
B)  II and III 
C)  II only 
D)  III only

Question 9

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

Accepted Answer

A)  A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B)  An increase in government transfer payments 
C)  An increase in the cost of a key input such as oil 
D)  A sharp fall in stock market prices 
A)  A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B)  An increase in government transfer payments 
C)  An increase in the cost of a key input such as oil 
D)  A sharp fall in stock market prices

Question 10

An increase in aggregate demand, all other things unchanged, in the long run will generate

Accepted Answer

A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level. 
A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level.

Question 11

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Accepted Answer

A)  increase and potential output to increase. 
B)  decrease and potential output to decrease. 
C)  increase and potential output to remain stable. 
D)  decrease and potential output to remain stable. 
A)  increase and potential output to increase. 
B)  decrease and potential output to decrease. 
C)  increase and potential output to remain stable. 
D)  decrease and potential output to remain stable.

Question 12

Figure 7-5  
-Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

Accepted Answer

A)  Price level = P1; real GDP = Yp 
B)  Price level = P1; real GDP = Y1 
C)  Price level = P2; real GDP = Y2 
D)  Price level = P3; real GDP = Yp 
A)  Price level = P1; real GDP = Yp 
B)  Price level = P1; real GDP = Y1 
C)  Price level = P2; real GDP = Y2 
D)  Price level = P3; real GDP = Yp

Question 13

When an economy fails to produce at its potential, 
I. there may be actions that the government or the central bank can take to push the economy toward its potential.
II. the unemployment rate is below its natural rate.
III. the average price level is likely to rise.

Accepted Answer

A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  I only 
A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  I only

Question 14

Figure 7-3  
-Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Accepted Answer

A)  The economy will return to its initial equilibrium at point A. 
B)  Equilibrium will be re-established at point B with a higher potential output. 
C)  Equilibrium will be re-established at point E at a higher price level. 
D)  The aggregate demand curve will shift back to AD1. 
A)  The economy will return to its initial equilibrium at point A. 
B)  Equilibrium will be re-established at point B with a higher potential output. 
C)  Equilibrium will be re-established at point E at a higher price level. 
D)  The aggregate demand curve will shift back to AD1.

Question 15

Figure 7-2  
-Refer to Figure 7-2. Changes in aggregate demand from AD1 to either AD2 or AD3

Accepted Answer

A)  will change nominal GDP but will not change real GDP in the long run. 
B)  will change real GDP but will not change nominal GDP in the long run. 
C)  will change the potential level of real GDP. 
D)  will change the price level and real GDP. 
A)  will change nominal GDP but will not change real GDP in the long run. 
B)  will change real GDP but will not change nominal GDP in the long run. 
C)  will change the potential level of real GDP. 
D)  will change the price level and real GDP.

Question 16

Figure 7-1  
-Refer to Figure 7-1. What could have caused a movement from point A to point D?

Accepted Answer

A)  Technological advancement 
B)  An increase in the inflation rate 
C)  An increase in household wealth 
D)  A recession in foreign countries 
A)  Technological advancement 
B)  An increase in the inflation rate 
C)  An increase in household wealth 
D)  A recession in foreign countries

Question 17

Suppose that government spending on defense rises by $50 billion. What happens to the aggregate demand curve if the multiplier is greater than 1?

Accepted Answer

A)  It shifts right by $50 billion at each price level. 
B)  It shifts right by more than $50 billion at each price level. 
C)  It shifts right by less than $50 billion at each price level. 
D)  The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level. 
A)  It shifts right by $50 billion at each price level. 
B)  It shifts right by more than $50 billion at each price level. 
C)  It shifts right by less than $50 billion at each price level. 
D)  The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level.

Question 18

All other things unchanged, a higher exchange rate

Accepted Answer

A)  reduces net exports and aggregate demand. 
B)  reduces net exports and increases aggregate demand. 
C)  increases net exports and aggregate demand. 
D)  increases net exports and reduces aggregate demand. 
A)  reduces net exports and aggregate demand. 
B)  reduces net exports and increases aggregate demand. 
C)  increases net exports and aggregate demand. 
D)  increases net exports and reduces aggregate demand.

Question 19

Which of the following is an explanation for price stickiness? 
I. There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II. Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III. Firms may have explicit long-term contracts to sell their products to other firms at specified prices.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III

Question 20

Figure 7-2  
-Refer to Figure 7-2. The potential output in this economy is

Accepted Answer

A)  $6,000 billion at a price level of 1.08. 
B)  $7,000 billion at a price level of 1.12. 
C)  $7, 100 billion at a price level of 1.16. 
D)  $7,056 billion at a price level of 1.08. 
A)  $6,000 billion at a price level of 1.08. 
B)  $7,000 billion at a price level of 1.12. 
C)  $7, 100 billion at a price level of 1.16. 
D)  $7,056 billion at a price level of 1.08.

According to the international trade effect, holding everything else unchanged,

Figure 7-4 -Refer to Figure 7-4. For the economy represented in the figure,

Which of the following will increase the aggregate quantity of output supplied?

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Wage and price stickiness

Figure 7-2 -Refer to Figure 7-2. If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

An increase in aggregate demand, all other things unchanged, in the long run will generate

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Figure 7-5 -Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

When an economy fails to produce at its potential, I. there may be actions that the government or the central bank can take to push the economy toward its potential. II. the unemployment rate is below its natural rate. III. the average price level is likely to rise.

Figure 7-3 -Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Figure 7-2 -Refer to Figure 7-2. Changes in aggregate demand from AD₁ to either AD₂ or AD₃

Figure 7-1 -Refer to Figure 7-1. What could have caused a movement from point A to point D?

Suppose that government spending on defense rises by $50 billion. What happens to the aggregate demand curve if the multiplier is greater than 1?

All other things unchanged, a higher exchange rate

Figure 7-2 -Refer to Figure 7-2. The potential output in this economy is

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 7: Aggregate Demand and Aggregate Supply

According to the international trade effect, holding everything else unchanged,

Figure 7-4 -Refer to Figure 7-4. For the economy represented in the figure,

Which of the following will increase the aggregate quantity of output supplied?

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Wage and price stickiness

Figure 7-2 -Refer to Figure 7-2. If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

An increase in aggregate demand, all other things unchanged, in the long run will generate

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Figure 7-5 -Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

When an economy fails to produce at its potential, I. there may be actions that the government or the central bank can take to push the economy toward its potential. II. the unemployment rate is below its natural rate. III. the average price level is likely to rise.

Figure 7-3 -Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Figure 7-2 -Refer to Figure 7-2. Changes in aggregate demand from AD1 to either AD2 or AD3

Figure 7-1 -Refer to Figure 7-1. What could have caused a movement from point A to point D?

Suppose that government spending on defense rises by $50 billion. What happens to the aggregate demand curve if the multiplier is greater than 1?

All other things unchanged, a higher exchange rate

Figure 7-2 -Refer to Figure 7-2. The potential output in this economy is

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Figure 7-2 -Refer to Figure 7-2. Changes in aggregate demand from AD₁ to either AD₂ or AD₃