Question 1

The business cycle ________ on KB Homes since the company's inception over 60 years ago.

Accepted Answer

A)  has had virtually no effect 
B)  has always had a negative effect 
C)  has had a large effect 
D)  has always had a positive effect 
A)  has had virtually no effect 
B)  has always had a negative effect 
C)  has had a large effect 
D)  has always had a positive effect

Question 2

Figure 24-4  
-Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

Accepted Answer

A)  8% 
B)  9.1% 
C)  10% 
D)  12% 
A)  8% 
B)  9.1% 
C)  10% 
D)  12%

Question 3

Potential GDP refers to the level of

Accepted Answer

A)  real GDP in the long run. 
B)  nominal GDP in the long run. 
C)  real GDP in the short run. 
D)  nominal GDP in the short run. 
A)  real GDP in the long run. 
B)  nominal GDP in the long run. 
C)  real GDP in the short run. 
D)  nominal GDP in the short run.

Question 4

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point A. If investment 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 5

According to the real business cycle model, ________ in aggregate demand ________ GDP.

Accepted Answer

A)  increases; decrease 
B)  increases; increase 
C)  increases; do not affect 
D)  decreases; increase 
A)  increases; decrease 
B)  increases; increase 
C)  increases; do not affect 
D)  decreases; increase

Question 6

An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.

Accepted Answer

A)  decrease; a higher price level reduces consumption, investment, and net exports. 
B)  increase; a higher price level reduces consumption, investment, and net exports. 
C)  decrease; a higher price level increases consumption, investment, and net exports. 
D)  increase; a higher price level increases consumption, investment, and net exports. 
A)  decrease; a higher price level reduces consumption, investment, and net exports. 
B)  increase; a higher price level reduces consumption, investment, and net exports. 
C)  decrease; a higher price level increases consumption, investment, and net exports. 
D)  increase; a higher price level increases consumption, investment, and net exports.

Question 7

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

Accepted Answer

Aggregate demand inc

Question 8

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in interest rates 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 9

Stagflation occurs when short-run aggregate supply decreases.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is considered a negative supply shock?

Accepted Answer

A)  increasing investment in the economy causes the capital stock to rise 
B)  an unexpected increase in the price of natural gas 
C)  a decline in wages 
D)  an improvement in technology 
A)  increasing investment in the economy causes the capital stock to rise 
B)  an unexpected increase in the price of natural gas 
C)  a decline in wages 
D)  an improvement in technology

Question 11

________ of unemployment during ________ make it easier for workers to ________ wages.

Accepted Answer

A)  High levels; a recession; negotiate higher 
B)  Low levels; an expansion; negotiate higher 
C)  Low levels; a recession; accept lower 
D)  High levels; an expansion; accept lower 
A)  High levels; a recession; negotiate higher 
B)  Low levels; an expansion; negotiate higher 
C)  Low levels; a recession; accept lower 
D)  High levels; an expansion; accept lower

Question 12

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, an increase in interest rates 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 13

Spending on the war in Afghanistan is essentially categorized as government purchases. How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?

Accepted Answer

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

Question 14

In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve.

Accepted Answer

Reducing the interest rate lowers the co

Question 15

In the long run

Accepted Answer

A)  GDP = potential GDP. 
B)  unemployment is below its natural rate. 
C)  LRAS and SRAS lie on the same line. 
D)  unemployment is above its natural rate. 
A)  GDP = potential GDP. 
B)  unemployment is below its natural rate. 
C)  LRAS and SRAS lie on the same line. 
D)  unemployment is above its natural rate.

Question 16

What variables cause the short-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

Accepted Answer

The variables that will cause the short-

Question 17

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point C. If government 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 18

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase 
A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase

Question 19

As the recession persisted into 2009, the unemployment rate in the United States rose to ________, the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Accepted Answer

A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent 
A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent

Question 20

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

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)  AD did not shift and SRAS shifted to the left. 
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)  AD did not shift and SRAS shifted to the left.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The business cycle ________ on KB Homes since the company's inception over 60 years ago.

Figure 24-4 -Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

Potential GDP refers to the level of

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

According to the real business cycle model, ________ in aggregate demand ________ GDP.

An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.

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

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

Stagflation occurs when short-run aggregate supply decreases.

Which of the following is considered a negative supply shock?

________ of unemployment during ________ make it easier for workers to ________ wages.

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

Spending on the war in Afghanistan is essentially categorized as government purchases. How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?

In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve.

In the long run

What variables cause the short-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

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

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

As the recession persisted into 2009, the unemployment rate in the United States rose to ________, the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

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

Figure 24-4 -Refer to Figure 24-4. In the figure above, LRAS₁ and SRAS₁ denote LRAS and SRAS in year 1, while LRAS₂ and SRAS₂ denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

According to the real business cycle model, in aggregate demand GDP.

An increase in the price level results in a(n) in the quantity of real GDP demanded because .

of unemployment during make it easier for workers to wages.

A decrease in investment causes the price level to in the short run and in the long run.