Question 1

The level of long-run aggregate supply is affected by all of the following except

Accepted Answer

A)  changes in the price level. 
B)  changes in the technology. 
C)  changes in the capital stock. 
D)  changes in the number of workers. 
A)  changes in the price level. 
B)  changes in the technology. 
C)  changes in the capital stock. 
D)  changes in the number of workers.

Question 2

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

Accepted Answer

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

Question 3

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

Accepted Answer

A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices. 
A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.

Question 5

There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level 
A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level

Question 6

Which of the following models relies on emphasizing the importance of sticky wages and prices?

Accepted Answer

A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model 
A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model

Question 7

The short-run aggregate supply curve has a

Accepted Answer

A)  negative slope. 
B)  positive slope. 
C)  slope equal to infinity. 
D)  slope equal to zero. 
A)  negative slope. 
B)  positive slope. 
C)  slope equal to infinity. 
D)  slope equal to zero.

Question 8

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

Accepted Answer

A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  SRAS and AD do not shift. 
A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  SRAS and AD do not shift.

Question 9

Explain the three reasons the aggregate demand curve slopes downward.

Accepted Answer

The three reasons are the wealth effect,

Question 10

Which of the following models focuses on how productivity shocks explain fluctuations in real GDP?

Accepted Answer

A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model 
A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model

Question 11

Which of the following would cause the short-run aggregate supply curve to shift to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in inflation expectations 
C)  a technological advance 
D)  an increase in interest rates 
A)  an increase in the price level 
B)  a decrease in inflation expectations 
C)  a technological advance 
D)  an increase in interest rates

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level 
A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level

Question 14

Long-run macroeconomic equilibrium occurs when the aggregate demand curve ________ the short-run aggregate supply curve, and they ________ the long-run supply curve.

Accepted Answer

A)  intersects; intersect at a point to the right of 
B)  intersects; intersect at a point on 
C)  is steeper than; intersect at a point to the left of 
D)  is flatter than; intersect at a point to the right of 
A)  intersects; intersect at a point to the right of 
B)  intersects; intersect at a point on 
C)  is steeper than; intersect at a point to the left of 
D)  is flatter than; intersect at a point to the right of

Question 15

Monetarism is a school of thought put forth by ________, who argued that the economy would ordinarily be at potential GDP.

Accepted Answer

A)  Karl Marx 
B)  Milton Friedman 
C)  Finn Kydland and Edward Prescott 
D)  Robert Lucas and Thomas Sargent 
A)  Karl Marx 
B)  Milton Friedman 
C)  Finn Kydland and Edward Prescott 
D)  Robert Lucas and Thomas Sargent

Question 16

If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

Accepted Answer

A)  stagflation. 
B)  long-run economic decline. 
C)  hyperinflation. 
D)  an increase in the natural rate of unemployment. 
A)  stagflation. 
B)  long-run economic decline. 
C)  hyperinflation. 
D)  an increase in the natural rate of unemployment.

Question 17

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

Accepted Answer

The long-run effects differ from the sho

Question 18

Short-run macroeconomic equilibrium occurs when

Accepted Answer

A)  aggregate demand and short-run aggregate supply intersect. 
B)  the equilibrium lies on the long-run aggregate supply curve. 
C)  structural and frictional unemployment equal zero. 
D)  A and B 
A)  aggregate demand and short-run aggregate supply intersect. 
B)  the equilibrium lies on the long-run aggregate supply curve. 
C)  structural and frictional unemployment equal zero. 
D)  A and B

Question 19

The ________ curve has a positive slope because as prices of final goods and services rise, prices of inputs rise more slowly.

Accepted Answer

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

Question 20

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S. exports increasing faster than U.S. imports. This 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.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The level of long-run aggregate supply is affected by all of the following except

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

Which of the following models relies on emphasizing the importance of sticky wages and prices?

The short-run aggregate supply curve has a

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

Explain the three reasons the aggregate demand curve slopes downward.

Which of the following models focuses on how productivity shocks explain fluctuations in real GDP?

Which of the following would cause the short-run aggregate supply curve to shift to the right?

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

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

Long-run macroeconomic equilibrium occurs when the aggregate demand curve ________ the short-run aggregate supply curve, and they ________ the long-run supply curve.

Monetarism is a school of thought put forth by ________, who argued that the economy would ordinarily be at potential GDP.

If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

Short-run macroeconomic equilibrium occurs when

The ________ curve has a positive slope because as prices of final goods and services rise, prices of inputs rise more slowly.

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S. exports increasing faster than U.S. imports. This would be represented by a movement from

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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There has been a decrease in investment. As a result, real GDP will in the short run, and in the long run.

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will in the short run, and in the long run.

Long-run macroeconomic equilibrium occurs when the aggregate demand curve the short-run aggregate supply curve, and they the long-run supply curve.