Question 1

The long-run adjustment to a negative supply shock results in

Accepted Answer

A)  the short-run aggregate supply curve shifting to the right. 
B)  the price level rising. 
C)  unemployment rising. 
D)  workers being willing to accept higher wages. 
A)  the short-run aggregate supply curve shifting to the right. 
B)  the price level rising. 
C)  unemployment rising. 
D)  workers being willing to accept higher wages.

Question 2

According to the real business cycle model

Accepted Answer

A)  increases in aggregate demand raise GDP. 
B)  increases in aggregate demand lower GDP. 
C)  increases in aggregate demand do not affect GDP. 
D)  increases in aggregate demand lower the price level. 
A)  increases in aggregate demand raise GDP. 
B)  increases in aggregate demand lower GDP. 
C)  increases in aggregate demand do not affect GDP. 
D)  increases in aggregate demand lower the price level.

Question 3

Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

Accepted Answer

@#IMG-DLM& AD₁, SRAS₁ and LRAS₁ all represent year 1.

Question 4

The basic aggregate demand and aggregate supply curve model helps explain

Accepted Answer

A)  short-term fluctuations in real GDP and the price level. 
B)  long-term growth. 
C)  price fluctuations in an individual market. 
D)  output fluctuations in an individual market. 
A)  short-term fluctuations in real GDP and the price level. 
B)  long-term growth. 
C)  price fluctuations in an individual market. 
D)  output fluctuations in an individual market.

Question 5

When potential GDP increases, long-run aggregate supply also increases.

Accepted Answer

A) True 
 B)False

Question 6

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

Accepted Answer

A)  It is a horizontal line at $600 billion of GDP. 
B)  It is a vertical line at a level of GDP below $600 billion. 
C)  It is a vertical line at $600 billion of GDP. 
D)  It is a vertical line at a level of GDP above $600 billion. 
A)  It is a horizontal line at $600 billion of GDP. 
B)  It is a vertical line at a level of GDP below $600 billion. 
C)  It is a vertical line at $600 billion of GDP. 
D)  It is a vertical line at a level of GDP above $600 billion.

Question 7

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A)  raises; recession; lowers; expansion 
B)  raises; expansion; raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion 
A)  raises; recession; lowers; expansion 
B)  raises; expansion; raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion

Question 8

Workers expect inflation to rise from 3% to 5% next year. As a result, this should

Accepted Answer

A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve. 
A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve.

Question 9

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)  the leftward shift of the short-run aggregate supply curve that occurs after a recession 
B)  the rightward shift of the short-run aggregate supply curve that occurs after a recession 
C)  the leftward shift of the aggregate demand curve that occurs after a recession 
D)  the rightward shift of the aggregate demand curve that occurs during a recession 
A)  the leftward shift of the short-run aggregate supply curve that occurs after a recession 
B)  the rightward shift of the short-run aggregate supply curve that occurs after a recession 
C)  the leftward shift of the aggregate demand curve that occurs after a recession 
D)  the rightward shift of the aggregate demand curve that occurs during a recession

Question 11

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in firms' expectations of the future profitability of investment spending would be represented by a movement from

Accepted Answer

A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A. 
A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A.

Question 12

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

Accepted Answer

A)  SRAS1 to SRAS2. 
B)  SRAS2 to SRAS1. 
C)  point A to point B. 
D)  point B to point A. 
A)  SRAS1 to SRAS2. 
B)  SRAS2 to SRAS1. 
C)  point A to point B. 
D)  point B to point A.

Question 13

An increase in the price level will

Accepted Answer

A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve. 
A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve.

Question 14

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

Accepted Answer

A)  aggregate demand curve 
B)  short-run aggregate supply curve 
C)  long-run aggregate supply curve 
D)  short-run and long-run aggregate supply curves 
A)  aggregate demand curve 
B)  short-run aggregate supply curve 
C)  long-run aggregate supply curve 
D)  short-run and long-run aggregate supply curves

Question 15

A decrease in the price level will

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  move the economy up along a stationary aggregate demand curve. 
D)  move the economy down along a stationary aggregate demand curve. 
A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  move the economy up along a stationary aggregate demand curve. 
D)  move the economy down along a stationary aggregate demand curve.

Question 16

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

Accepted Answer

A)  rises; falls 
B)  rises; rises 
C)  falls; falls 
D)  falls; rises 
A)  rises; falls 
B)  rises; rises 
C)  falls; falls 
D)  falls; rises

Question 17

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A)  Potential real GDP increases continuously. 
B)  The aggregate demand curve shifts to the right during most periods. 
C)  The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential real GDP decrease continuously. 
A)  Potential real GDP increases continuously. 
B)  The aggregate demand curve shifts to the right during most periods. 
C)  The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential real GDP decrease continuously.

Question 18

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Accepted Answer

A)  the price level; real GDP 
B)  real GDP; real GDP 
C)  the price level; the price level 
D)  real GDP; the price level 
A)  the price level; real GDP 
B)  real GDP; real GDP 
C)  the price level; the price level 
D)  real GDP; the price level

Question 19

Which of the following best describes the "interest rate effect"?

Accepted Answer

A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending. 
A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 20

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

Accepted Answer

A)  Increases in the price level lower the interest rate and decrease consumption spending. 
B)  Increases in the price level lower the interest rate and decrease investment spending. 
C)  Increases in the U.S. price level relative to the price level in other countries lowers net exports. 
D)  Increases in the price level raise real wealth and lowers consumption spending. 
A)  Increases in the price level lower the interest rate and decrease consumption spending. 
B)  Increases in the price level lower the interest rate and decrease investment spending. 
C)  Increases in the U.S. price level relative to the price level in other countries lowers net exports. 
D)  Increases in the price level raise real wealth and lowers consumption spending.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The long-run adjustment to a negative supply shock results in

According to the real business cycle model

Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

The basic aggregate demand and aggregate supply curve model helps explain

When potential GDP increases, long-run aggregate supply also increases.

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Workers expect inflation to rise from 3% to 5% next year. As a result, this should

The long-run aggregate supply curve is vertical.

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in firms' expectations of the future profitability of investment spending would be represented by a movement from

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

An increase in the price level will

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

A decrease in the price level will

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Which of the following best describes the "interest rate effect"?

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The automatic mechanism the price level in the case of and the price level in the case of .

When the price of oil rises unexpectedly, the equilibrium price level and the unemployment rate in the short run.

A decrease in aggregate demand causes a decrease in only in the short run, but causes a decrease in in both the short run and the long run.