Question 1

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels) The table shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. If policymakers choose to close the gap by using stabilization policy, they should use

Accepted Answer

A)  contractionary fiscal or monetary policies. 
B)  expansionary fiscal or monetary policies. 
C)  a combination of contractionary fiscal and expansionary monetary policies. 
D)  a combination of expansionary fiscal and contractionary monetary policies. 
A)  contractionary fiscal or monetary policies. 
B)  expansionary fiscal or monetary policies. 
C)  a combination of contractionary fiscal and expansionary monetary policies. 
D)  a combination of expansionary fiscal and contractionary monetary policies.

Question 3

Use the following to answer questions .
Exhibit: Short-run Aggregate Supply  
-(Exhibit: Short-run Aggregate Supply) 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 4

The long-run aggregate supply curve

Accepted Answer

A)  relates the level of nominal output produced by firms to the implicit price deflator. 
B)  relates the level of output produced by firms to the price level in the long run. 
C)  is vertical because there is one price level and an infinite number of outputs. 
D)  is determined by the real output demanded by economic agents in an economy. 
A)  relates the level of nominal output produced by firms to the implicit price deflator. 
B)  relates the level of output produced by firms to the price level in the long run. 
C)  is vertical because there is one price level and an infinite number of outputs. 
D)  is determined by the real output demanded by economic agents in an economy.

Question 5

Use the following to answer questions .
Exhibit: Short-run Aggregate Supply  
-(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the long-run, all other things unchanged?

Accepted Answer

A)  The aggregate demand curve will shift back to AD1. 
B)  The economy will be stuck at an output level below its potential level. 
C)  The economy returns to full-employment equilibrium at point A. 
D)  The economy returns to full-employment equilibrium at point D. 
A)  The aggregate demand curve will shift back to AD1. 
B)  The economy will be stuck at an output level below its potential level. 
C)  The economy returns to full-employment equilibrium at point A. 
D)  The economy returns to full-employment equilibrium at point D.

Question 6

Potential output is

Accepted Answer

A)  the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. 
B)  the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. 
C)  the level of real GDP that exists when the actual rate of unemployment is zero. 
D)  the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment. 
A)  the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. 
B)  the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. 
C)  the level of real GDP that exists when the actual rate of unemployment is zero. 
D)  the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.

Question 7

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. All of the following statements are true except

Accepted Answer

A)  the economy is in equilibrium at its potential output. 
B)  the labor market is in equilibrium. 
C)  there is no cyclical unemployment. 
D)  there is no structural or frictional unemployment. 
A)  the economy is in equilibrium at its potential output. 
B)  the labor market is in equilibrium. 
C)  there is no cyclical unemployment. 
D)  there is no structural or frictional unemployment.

Question 8

The short-run aggregate supply curve slopes upward because of

Accepted Answer

A)  wage and price stickiness. 
B)  wage and price flexibility. 
C)  increasing technology. 
D)  a reduction in resource availability at higher price levels. 
A)  wage and price stickiness. 
B)  wage and price flexibility. 
C)  increasing technology. 
D)  a reduction in resource availability at higher price levels.

Question 9

What happens in the domestic economy when there is an increase in foreign prices, all other things unchanged?

Accepted Answer

A)  Net exports and aggregate demand fall. 
B)  Net exports fall and aggregate demand increases. 
C)  Net exports and aggregate demand increase. 
D)  Net exports rise and aggregate demand falls. 
A)  Net exports and aggregate demand fall. 
B)  Net exports fall and aggregate demand increases. 
C)  Net exports and aggregate demand increase. 
D)  Net exports rise and aggregate demand falls.

Question 10

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

Accepted Answer

A)  A change in aggregate supply is represented by a movement along the aggregate supply curve in response to a price change, while a change in aggregate output supplied is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level. 
B)  A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in the actual price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the expected price level. 
C)  A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the price level. 
D)  There is no difference between the two terms. 
A)  A change in aggregate supply is represented by a movement along the aggregate supply curve in response to a price change, while a change in aggregate output supplied is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level. 
B)  A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in the actual price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the expected price level. 
C)  A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the price level. 
D)  There is no difference between the two terms.

Question 11

The multiplier is given by

Accepted Answer

A)  the ratio of the initial change in a component of aggregate demand to the change in the quantity of real GDP demanded at each price level. 
B)  the ratio of the change in the quantity of real GDP demanded at each price level to the initial change in a component of aggregate demand that produced it. 
C)  the amount by which the quantity of real GDP demanded at each price level changes in response to an initial change in a component of aggregate demand. 
D)  the percentage change between the initial change in a component of aggregate demand and the final change in the quantity of real GDP demanded at each price level. 
A)  the ratio of the initial change in a component of aggregate demand to the change in the quantity of real GDP demanded at each price level. 
B)  the ratio of the change in the quantity of real GDP demanded at each price level to the initial change in a component of aggregate demand that produced it. 
C)  the amount by which the quantity of real GDP demanded at each price level changes in response to an initial change in a component of aggregate demand. 
D)  the percentage change between the initial change in a component of aggregate demand and the final change in the quantity of real GDP demanded at each price level.

Question 12

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and an increase 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 13

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) Suppose the economy is initially in short-run equilibrium at K. Which of the following stabilization policies could be used to close the gap?

Accepted Answer

A)  Decrease government welfare spending 
B)  Decrease personal income taxes 
C)  Decrease government spending on defense 
D)  Increase payroll taxes 
A)  Decrease government welfare spending 
B)  Decrease personal income taxes 
C)  Decrease government spending on defense 
D)  Increase payroll taxes

Question 14

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

Accepted Answer

A)  the SRAS curve. 
B)  the AD curve. 
C)  the LRAS curve. 
D)  both the SRAS and the LRAS curves. 
A)  the SRAS curve. 
B)  the AD curve. 
C)  the LRAS curve. 
D)  both the SRAS and the LRAS curves.

Question 15

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially in short-run equilibrium at B. If policy-makers decide to intervene to close the gap, which of the following can it do?

Accepted Answer

A)  Decrease personal income taxes. 
B)  Increase government welfare spending. 
C)  Decrease the level of government purchases of goods and services. 
D)  Institute investment tax credits to encourage business investment. 
A)  Decrease personal income taxes. 
B)  Increase government welfare spending. 
C)  Decrease the level of government purchases of goods and services. 
D)  Institute investment tax credits to encourage business investment.

Question 16

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable. Which of the following is a reason for this?

Accepted Answer

A)  Firms responded to the decline in output demanded by making quantity adjustments and not price adjustments. 
B)  The short-run aggregate supply curve must have also shifted to the left. 
C)  The short-run aggregate supply curve must have also shifted to the right. 
D)  The short-run aggregate supply curve must be horizontal due to severe wage and price stickiness. 
A)  Firms responded to the decline in output demanded by making quantity adjustments and not price adjustments. 
B)  The short-run aggregate supply curve must have also shifted to the left. 
C)  The short-run aggregate supply curve must have also shifted to the right. 
D)  The short-run aggregate supply curve must be horizontal due to severe wage and price stickiness.

Question 17

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Accepted Answer

A)  The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B)  The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
C)  The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. 
D)  The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 
A)  The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B)  The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
C)  The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. 
D)  The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.

Question 18

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

Accepted Answer

A)  monetary policy. 
B)  fiscal policy. 
C)  congressional policy. 
D)  Federal Government policy. 
A)  monetary policy. 
B)  fiscal policy. 
C)  congressional policy. 
D)  Federal Government policy.

Question 19

All other things unchanged, an increase in exports relative to imports will

Accepted Answer

A)  cause a movement upward along a given aggregate demand curve. 
B)  cause a movement downward along a given aggregate demand curve. 
C)  shift the aggregate demand curve to the right. 
D)  shift the aggregate demand curve to the left. 
A)  cause a movement upward along a given aggregate demand curve. 
B)  cause a movement downward along a given aggregate demand curve. 
C)  shift the aggregate demand curve to the right. 
D)  shift the aggregate demand curve to the left.

Question 20

All of the following statements are true about the short-run aggregate supply curve except

Accepted Answer

A)  it is a graphical representation of the relationship between production and the price level. 
B)  it is a result of the stickiness or inflexibility of some prices and wages. 
C)  it is upward-sloping. 
D)  it is drawn holding price level constant. 
A)  it is a graphical representation of the relationship between production and the price level. 
B)  it is a result of the stickiness or inflexibility of some prices and wages. 
C)  it is upward-sloping. 
D)  it is drawn holding price level constant.

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) 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?

The long-run aggregate supply curve

Potential output is

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. All of the following statements are true except

The short-run aggregate supply curve slopes upward because of

What happens in the domestic economy when there is an increase in foreign prices, all other things unchanged?

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

The multiplier is given by

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

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable. Which of the following is a reason for this?

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

All other things unchanged, an increase in exports relative to imports will

All of the following statements are true about the short-run aggregate supply curve except

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Exam 7: Aggregate Demand and Aggregate Supply

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) 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?

The long-run aggregate supply curve

Potential output is

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. All of the following statements are true except

The short-run aggregate supply curve slopes upward because of

What happens in the domestic economy when there is an increase in foreign prices, all other things unchanged?

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

The multiplier is given by

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

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable. Which of the following is a reason for this?

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

All other things unchanged, an increase in exports relative to imports will

All of the following statements are true about the short-run aggregate supply curve except

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters