Question 1

Higher personal income taxes

Accepted Answer

A)  increase aggregate demand. 
B)  increase disposable income. 
C)  decrease aggregate demand. 
D)  both B and C 
A)  increase aggregate demand. 
B)  increase disposable income. 
C)  decrease aggregate demand. 
D)  both B and C

Question 2

Explain how each of the following events would affect the short-run aggregate supply curve.
a. A decrease in the price level
b. A decrease in what the price level is expected to be in the future
c. A price level that is currently lower than expected
d. An unexpected decrease in the price of an important raw material
e. A decrease in the labor force

Accepted Answer

a. A lower price level would cause a mov

Question 3

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Accepted Answer

A)  imports; exports; net exports 
B)  exports; imports; net exports 
C)  net exports; exports; imports 
D)  net exports; imports; exports 
A)  imports; exports; net exports 
B)  exports; imports; net exports 
C)  net exports; exports; imports 
D)  net exports; imports; exports

Question 4

Figure 24-4  
-Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?

Accepted Answer

A)  It will rise. 
B)  It will fall. 
C)  It will remain constant. 
D)  not enough information to answer the question 
A)  It will rise. 
B)  It will fall. 
C)  It will remain constant. 
D)  not enough information to answer the question

Question 5

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase 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 6

Inflation will

Accepted Answer

A)  increase aggregate demand. 
B)  increase the quantity of real GDP demanded. 
C)  decrease aggregate demand. 
D)  decrease the quantity of real GDP demanded. 
A)  increase aggregate demand. 
B)  increase the quantity of real GDP demanded. 
C)  decrease aggregate demand. 
D)  decrease the quantity of real GDP demanded.

Question 7

What is potential GDP?

Accepted Answer

A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant. 
A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant.

Question 8

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, a decrease in the expected price of an important natural resource 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 9

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

Accepted Answer

Aggregate demand inc

Question 10

According to ________, entrepreneurship does not contribute anything of value to production.

Accepted Answer

A)  Robert Lucas and Thomas Sargent 
B)  Milton Friedman 
C)  John Maynard Keynes 
D)  Karl Marx 
A)  Robert Lucas and Thomas Sargent 
B)  Milton Friedman 
C)  John Maynard Keynes 
D)  Karl Marx

Question 11

An increase in the price level shifts the aggregate demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 12

A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level.

Accepted Answer

A) True 
 B)False

Question 13

Inflation is generally the result of total spending growing faster than total production.

Accepted Answer

A) True 
 B)False

Question 14

An increase in exports decreases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 15

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases 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 16

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

Accepted Answer

A)  monetary policy. 
B)  an automatic mechanism. 
C)  "releasing sticky prices." 
D)  fiscal policy. 
A)  monetary policy. 
B)  an automatic mechanism. 
C)  "releasing sticky prices." 
D)  fiscal policy.

Question 17

Stagflation occurs when

Accepted Answer

A)  inflation rises and GDP rises. 
B)  inflation falls and GDP rises. 
C)  inflation rises and GDP falls. 
D)  inflation falls and GDP falls. 
A)  inflation rises and GDP rises. 
B)  inflation falls and GDP rises. 
C)  inflation rises and GDP falls. 
D)  inflation falls and GDP falls.

Question 18

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Accepted Answer

We can make the aggregate demand and agg

Question 19

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Accepted Answer

@#IMG-DLM& If the aggregate demand curve shifts to

Question 20

Declines in spending on residential construction are often due to increases in interest rates. The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates.

Accepted Answer

A)  the financial crisis that began in 2007 
B)  the rapid inflation of the early 2000s 
C)  increases in the price of lumber 
D)  rising wages in the construction industry 
A)  the financial crisis that began in 2007 
B)  the rapid inflation of the early 2000s 
C)  increases in the price of lumber 
D)  rising wages in the construction industry

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Higher personal income taxes

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.

Inflation will

What is potential GDP?

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, a decrease in the expected price of an important natural resource would be represented by a movement from

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

According to ________, entrepreneurship does not contribute anything of value to production.

An increase in the price level shifts the aggregate demand curve to the left.

A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level.

Inflation is generally the result of total spending growing faster than total production.

An increase in exports decreases aggregate demand.

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

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

Stagflation occurs when

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Declines in spending on residential construction are often due to increases in interest rates. The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates.

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

When the price level in the United States falls relative to the price level of other countries, will fall, will rise, and will rise.

An increase in aggregate demand causes an increase in only in the short run, but causes an increase in in both the short run and the long run.