Question 1

A recessionary gap occurs if:

Accepted Answer

A)  actual real GDP is less than potential output. 
B)  actual real GDP is greater than potential output. 
C)  actual real GDP is equal to potential output. 
D)  unemployment is less than the natural rate. 
A)  actual real GDP is less than potential output. 
B)  actual real GDP is greater than potential output. 
C)  actual real GDP is equal to potential output. 
D)  unemployment is less than the natural rate.

Question 2

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Accepted Answer

A)  an increase; an increase 
B)  an increase; no change 
C)  a decrease; no change 
D)  no change; an increase 
A)  an increase; an increase 
B)  an increase; no change 
C)  a decrease; no change 
D)  no change; an increase

Question 3

Stabilization policies have:

Accepted Answer

A)  not reduced the effects of business cycles caused by either demand shocks or supply shocks. 
B)  reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks. 
C)  reduced the economic costs of supply shocks but have not been so successful against demand shocks. 
D)  reduced economic fluctuations by neutralizing the effects of both supply and demand shocks. 
A)  not reduced the effects of business cycles caused by either demand shocks or supply shocks. 
B)  reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks. 
C)  reduced the economic costs of supply shocks but have not been so successful against demand shocks. 
D)  reduced economic fluctuations by neutralizing the effects of both supply and demand shocks.

Question 4

The interest rate effect of a change in the aggregate price level occurs when:

Accepted Answer

A)  a higher price level decreases the purchasing power of money, resulting in an increase in the interest rate. 
B)  the Fed uses contractionary monetary policy, causing an increase in the interest rate. 
C)  government borrowing in the loanable funds market raises the interest rate. 
D)  the price of a bond increases, reducing the interest rate. 
A)  a higher price level decreases the purchasing power of money, resulting in an increase in the interest rate. 
B)  the Fed uses contractionary monetary policy, causing an increase in the interest rate. 
C)  government borrowing in the loanable funds market raises the interest rate. 
D)  the price of a bond increases, reducing the interest rate.

Question 5

If the economy is in a recessionary gap, actual output will be _____ potential output.

Accepted Answer

A)  below 
B)  the same as 
C)  above 
D)  in equilibrium with 
A)  below 
B)  the same as 
C)  above 
D)  in equilibrium with

Question 6

When the price level increases, people want to hold more money.

Accepted Answer

A) True 
 B)False

Question 7

The long-run level of output is known as _____ output.

Accepted Answer

A)  recognized 
B)  structural 
C)  potential 
D)  balanced budget 
A)  recognized 
B)  structural 
C)  potential 
D)  balanced budget

Question 8

A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Accepted Answer

A)  an increase; no change 
B)  a decrease; no change 
C)  a decrease; a decrease 
D)  no change; an increase 
A)  an increase; no change 
B)  a decrease; no change 
C)  a decrease; a decrease 
D)  no change; an increase

Question 9

Use the following to answer questions:
Figure: Policy Alternatives  
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is:

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  no gap. 
D)  long-run equilibrium. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  no gap. 
D)  long-run equilibrium.

Question 10

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Yp in panel (b):

Accepted Answer

A)  is potential output. 
B)  indicates a decrease in aggregate demand. 
C)  indicates a recessionary gap. 
D)  is associated with considerable unemployment. 
A)  is potential output. 
B)  indicates a decrease in aggregate demand. 
C)  indicates a recessionary gap. 
D)  is associated with considerable unemployment.

Question 11

An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

Accepted Answer

A)  become positively sloped. 
B)  remain constant. 
C)  shift to the right. 
D)  shift to the left. 
A)  become positively sloped. 
B)  remain constant. 
C)  shift to the right. 
D)  shift to the left.

Question 12

If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

Accepted Answer

A)  decrease; increases; right 
B)  decrease; decreases; left 
C)  increase; decreases; left 
D)  increase; decreases; right 
A)  decrease; increases; right 
B)  decrease; decreases; left 
C)  increase; decreases; left 
D)  increase; decreases; right

Question 13

Use the following to answer questions:
Figure: AD-AS Model II  
-(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _____ curve will shift to the _____.

Accepted Answer

A)  SRAS; left 
B)  SRAS; right 
C)  LRAS; right 
D)  AD; right 
A)  SRAS; left 
B)  SRAS; right 
C)  LRAS; right 
D)  AD; right

Question 14

When the price level decreases, firms in imperfectly competitive markets will:

Accepted Answer

A)  decrease output and increase the price. 
B)  decrease output. 
C)  decrease output and decrease the price. 
D)  increase output. 
A)  decrease output and increase the price. 
B)  decrease output. 
C)  decrease output and decrease the price. 
D)  increase output.

Question 15

The long run in macroeconomic analysis is a period:

Accepted Answer

A)  in which nominal wages and other prices are flexible. 
B)  in which wages are sticky. 
C)  of less than one year. 
D)  of one to two years. 
A)  in which nominal wages and other prices are flexible. 
B)  in which wages are sticky. 
C)  of less than one year. 
D)  of one to two years.

Question 16

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps  
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:

Accepted Answer

A)  aggregate demand curve to the left by increasing aggregate demand. 
B)  aggregate demand curve to the right by increasing aggregate demand. 
C)  SRAS curve to the left. 
D)  LRAS curve to the left. 
A)  aggregate demand curve to the left by increasing aggregate demand. 
B)  aggregate demand curve to the right by increasing aggregate demand. 
C)  SRAS curve to the left. 
D)  LRAS curve to the left.

Question 17

Producing an aggregate output level that is higher than potential output is possible only if nominal wages:

Accepted Answer

A)  fully adjust downward.. 
B)  fully adjust upward. 
C)  haven't yet fully adjusted upward. 
D)  haven't yet fully adjusted downward. 
A)  fully adjust downward.. 
B)  fully adjust upward. 
C)  haven't yet fully adjusted upward. 
D)  haven't yet fully adjusted downward.

Question 18

A recessionary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

Accepted Answer

A)  downward; short-run aggregate supply curve rightward 
B)  downward; short-run aggregate supply curve leftward 
C)  downward; aggregate demand curve downward 
D)  upward; aggregate demand curve leftward 
A)  downward; short-run aggregate supply curve rightward 
B)  downward; short-run aggregate supply curve leftward 
C)  downward; aggregate demand curve downward 
D)  upward; aggregate demand curve leftward

Question 19

Between 1929 and 1933, as aggregate demand decreased, the unemployment rate increased.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in aggregate demand is seen as a(n) _____ the aggregate demand curve.

Accepted Answer

A)  downward movement along 
B)  upward movement along 
C)  shift to the left of 
D)  shift to the right of 
A)  downward movement along 
B)  upward movement along 
C)  shift to the left of 
D)  shift to the right of

A recessionary gap occurs if:

An increase in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

Stabilization policies have:

The interest rate effect of a change in the aggregate price level occurs when:

If the economy is in a recessionary gap, actual output will be _____ potential output.

When the price level increases, people want to hold more money.

The long-run level of output is known as _____ output.

A decrease in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. At real GDP level Y₁ there is:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Y_p in panel (b):

An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

If the Fed decreases the quantity of money in circulation, interest rates ___, investment spending _, and the aggregate demand curve shifts to the ___.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _ curve will shift to the _.

When the price level decreases, firms in imperfectly competitive markets will:

The long run in macroeconomic analysis is a period:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y₁ to Y_p would attempt to shift the:

Producing an aggregate output level that is higher than potential output is possible only if nominal wages:

A recessionary gap will be eliminated because there is _ pressure on wages, shifting the _.

Between 1929 and 1933, as aggregate demand decreased, the unemployment rate increased.

A decrease in aggregate demand is seen as a(n) _____ the aggregate demand curve.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 12: Aggregate Demand and Aggregate Supply

A recessionary gap occurs if:

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Stabilization policies have:

The interest rate effect of a change in the aggregate price level occurs when:

If the economy is in a recessionary gap, actual output will be _____ potential output.

When the price level increases, people want to hold more money.

The long-run level of output is known as _____ output.

A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Yp in panel (b):

An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

If the Fed decreases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _____ curve will shift to the _____.

When the price level decreases, firms in imperfectly competitive markets will:

The long run in macroeconomic analysis is a period:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:

Producing an aggregate output level that is higher than potential output is possible only if nominal wages:

A recessionary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

Between 1929 and 1933, as aggregate demand decreased, the unemployment rate increased.

A decrease in aggregate demand is seen as a(n) _____ the aggregate demand curve.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

An increase in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

A decrease in aggregate demand will generate _ in real GDP and _ in the price level in the short run.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. At real GDP level Y₁ there is:

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. Y_p in panel (b):

If the Fed decreases the quantity of money in circulation, interest rates ___, investment spending _, and the aggregate demand curve shifts to the ___.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If nominal wages fall, in the short run the _ curve will shift to the _.

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y₁ to Y_p would attempt to shift the:

A recessionary gap will be eliminated because there is _ pressure on wages, shifting the _.