Question 1

The level of real GDP in the long run is called

Accepted Answer

A)  potential GDP. 
B)  short-run GDP. 
C)  frictional GDP. 
D)  low-capacity GDP. 
A)  potential GDP. 
B)  short-run GDP. 
C)  frictional GDP. 
D)  low-capacity GDP.

Question 2

Changes in the price level

Accepted Answer

A)  increase the level of aggregate supply in the long run. 
B)  decrease the level of aggregate supply in the long run. 
C)  do not affect the level of aggregate supply in the long run. 
D)  increase the level of aggregate supply in the long run only at very high levels of output. 
A)  increase the level of aggregate supply in the long run. 
B)  decrease the level of aggregate supply in the long run. 
C)  do not affect the level of aggregate supply in the long run. 
D)  increase the level of aggregate supply in the long run only at very high levels of output.

Question 3

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do the short-run supply curve?

Accepted Answer

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

Question 4

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, an increase in the capital stock 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 5

Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment. Which of the following will happen in the short run?

Accepted Answer

A)  Output will rise. 
B)  Prices will rise. 
C)  Unemployment will rise. 
D)  The aggregate demand curve will shift to the right. 
A)  Output will rise. 
B)  Prices will rise. 
C)  Unemployment will rise. 
D)  The aggregate demand curve will shift to the right.

Question 6

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

Accepted Answer

A)  business fixed investment spending rose and net export spending declined 
B)  consumption spending rose and residential construction spending declined 
C)  federal government purchases rose and changes in business inventories declined 
D)  net export spending rose and consumption spending declined 
A)  business fixed investment spending rose and net export spending declined 
B)  consumption spending rose and residential construction spending declined 
C)  federal government purchases rose and changes in business inventories declined 
D)  net export spending rose and consumption spending declined

Question 7

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in the price level 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 8

The ________ curve is vertical.

Accepted Answer

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

Question 9

An increase in imports increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

At the beginning of the recession of 2007-2009, real GDP in the United States was ________ potential GDP, and in June 2009, real GDP was ________ potential GDP.

Accepted Answer

A)  below; above 
B)  below; below 
C)  above; below 
D)  above; above 
A)  below; above 
B)  below; below 
C)  above; below 
D)  above; above

Question 11

At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.

Accepted Answer

A) True 
 B)False

Question 12

Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?

Accepted Answer

A)  Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. 
B)  Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. 
C)  Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. 
D)  Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. 
A)  Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. 
B)  Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. 
C)  Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. 
D)  Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall.

Question 13

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point A. If government spending increases in the economy, where will the eventual long-run equilibrium be?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 14

Figure 24-4  
-Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

Accepted Answer

A)  0.9% 
B)  1.8% 
C)  2.7% 
D)  3.0% 
A)  0.9% 
B)  1.8% 
C)  2.7% 
D)  3.0%

Question 15

One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

Accepted Answer

A) True 
 B)False

Question 16

If aggregate demand just increased, which of the following may have caused the increase?

Accepted Answer

A)  an increase in government purchases 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  an increase in imports 
A)  an increase in government purchases 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  an increase in imports

Question 17

Figure 24-4  
-Refer to Figure 24-4. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

Accepted Answer

A)  0.3% 
B)  1.1% 
C)  2.7% 
D)  3.7% 
A)  0.3% 
B)  1.1% 
C)  2.7% 
D)  3.7%

Question 18

Proponents of the real business cycle model argue that the short-run aggregate supply curve is

Accepted Answer

A)  flat. 
B)  positively sloped. 
C)  vertical. 
D)  negatively sloped. 
A)  flat. 
B)  positively sloped. 
C)  vertical. 
D)  negatively sloped.

Question 19

Explain how each of the following events would affect the long-run aggregate supply curve.
a. A lower price level
b. A decrease in the labor force
c. A decrease in the quantity of capital goods
d. Technological change

Accepted Answer

a. A lower price level would cause a mov

Question 20

Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result

Accepted Answer

A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%. 
A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The level of real GDP in the long run is called

Changes in the price level

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do the short-run supply curve?

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

Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment. Which of the following will happen in the short run?

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in the price level would be represented by a movement from

The ________ curve is vertical.

An increase in imports increases aggregate demand.

At the beginning of the recession of 2007-2009, real GDP in the United States was ________ potential GDP, and in June 2009, real GDP was ________ potential GDP.

At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.

Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?

Figure 24-3 -Refer to Figure 24-3. Suppose the economy is at point A. If government spending increases in the economy, where will the eventual long-run equilibrium be?

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

If aggregate demand just increased, which of the following may have caused the increase?

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

Proponents of the real business cycle model argue that the short-run aggregate supply curve is

Explain how each of the following events would affect the long-run aggregate supply curve. a. A lower price level b. A decrease in the labor force c. A decrease in the quantity of capital goods d. Technological change

Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result

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

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At the beginning of the recession of 2007-2009, real GDP in the United States was potential GDP, and in June 2009, real GDP was potential GDP.