Question 1

The long-run aggregate supply curve shows the relationship between

Accepted Answer

A)  short-run aggregate supply and short-run aggregate demand. 
B)  the price level and quantity of real GDP supplied. 
C)  the real interest rate and the nominal interest rate. 
D)  the quantity of real GDP supplied and the quantity of nominal GDP supplied. 
A)  short-run aggregate supply and short-run aggregate demand. 
B)  the price level and quantity of real GDP supplied. 
C)  the real interest rate and the nominal interest rate. 
D)  the quantity of real GDP supplied and the quantity of nominal GDP supplied.

Question 2

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future income 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 3

Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

A)  Output will increase. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  Short-run aggregate supply will shift to the left. 
A)  Output will increase. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  Short-run aggregate supply will shift to the left.

Question 4

Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

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

Question 5

New classical macroeconomic theory emphasizes the role of "sticky" prices in the economy.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in aggregate demand results in a(n) ________ in the ________.

Accepted Answer

A)  recession; long run 
B)  expansion; long run 
C)  expansion; short run 
D)  recession; short run 
A)  recession; long run 
B)  expansion; long run 
C)  expansion; short run 
D)  recession; short run

Question 7

On the long-run aggregate supply curve,

Accepted Answer

A)  a decrease in the price level decreases the level of potential GDP. 
B)  a decrease in the price level increases the aggregate quantity of GDP supplied. 
C)  a decrease in the price level decreases the aggregate quantity of GDP supplied. 
D)  a decrease in the price level has no effect on the aggregate quantity of GDP supplied. 
A)  a decrease in the price level decreases the level of potential GDP. 
B)  a decrease in the price level increases the aggregate quantity of GDP supplied. 
C)  a decrease in the price level decreases the aggregate quantity of GDP supplied. 
D)  a decrease in the price level has no effect on the aggregate quantity of GDP supplied.

Question 8

Workers expect inflation to fall from 4% to 1% 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

Suppose the U.S. GDP growth rate is slower relative to other countries' GDP growth rates. This will

Accepted Answer

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

Question 10

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level.

Accepted Answer

A)  negative; short-run 
B)  positive; short-run 
C)  negative; long-run 
D)  positive; long-run 
A)  negative; short-run 
B)  positive; short-run 
C)  negative; long-run 
D)  positive; long-run

Question 11

If the economy receives an influx of new workers from immigration,

Accepted Answer

A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  we will move up along the long-run aggregate supply curve. 
D)  we will move down along the long-run aggregate supply curve. 
A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  we will move up along the long-run aggregate supply curve. 
D)  we will move down along the long-run aggregate supply curve.

Question 12

Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would

Accepted Answer

A)  bring real GDP back to potential GDP more quickly but would result in a permanently higher price level. 
B)  bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly. 
C)  quickly result in a new, higher level of real GDP and a permanently lower price level. 
D)  bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP. 
A)  bring real GDP back to potential GDP more quickly but would result in a permanently higher price level. 
B)  bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly. 
C)  quickly result in a new, higher level of real GDP and a permanently lower price level. 
D)  bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.

Question 13

Figure 24-3  
-Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria?

Accepted Answer

A)  A and B 
B)  A and C 
C)  A and D 
D)  A, B, C, and D 
A)  A and B 
B)  A and C 
C)  A and D 
D)  A, B, C, and D

Question 14

An increase in the price level causes a movement down the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 15

Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock.

Accepted Answer

@#IMG-DLM& The economy is at point A with the pric

Question 16

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, an increase in personal income taxes 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 17

If technological change occurs in the economy

Accepted Answer

A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  we will move up along the long-run aggregate supply curve. 
D)  we will move down along the long-run aggregate supply curve. 
A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  we will move up along the long-run aggregate supply curve. 
D)  we will move down along the long-run aggregate supply curve.

Question 18

Monetarism is a school of thought put forth by Milton Friedman. He argued that the economy would ordinarily

Accepted Answer

A)  be below potential GDP. 
B)  be at potential GDP. 
C)  be unstable. 
D)  be above potential GDP. 
A)  be below potential GDP. 
B)  be at potential GDP. 
C)  be unstable. 
D)  be above potential GDP.

Question 19

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in government 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 20

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

Accepted Answer

A)  falling oil prices 
B)  increases in housing prices 
C)  the financial crisis 
D)  a decline in government spending 
A)  falling oil prices 
B)  increases in housing prices 
C)  the financial crisis 
D)  a decline in government spending

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The long-run aggregate supply curve shows the relationship between

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future income would be represented by a movement from

Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?

New classical macroeconomic theory emphasizes the role of "sticky" prices in the economy.

A decrease in aggregate demand results in a(n) ________ in the ________.

On the long-run aggregate supply curve,

Workers expect inflation to fall from 4% to 1% next year. As a result, this should

Suppose the U.S. GDP growth rate is slower relative to other countries' GDP growth rates. This will

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level.

If the economy receives an influx of new workers from immigration,

Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would

Figure 24-3 -Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria?

An increase in the price level causes a movement down the aggregate demand curve.

Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock.

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, an increase in personal income taxes would be represented by a movement from

If technological change occurs in the economy

Monetarism is a school of thought put forth by Milton Friedman. He argued that the economy would ordinarily

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in government spending would be represented by a movement from

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

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

A decrease in aggregate demand results in a(n) in the .

When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion. This relationship represents the relationship between GDP and the price level.