Question 1

The vertical portion of the aggregate supply curve shows that at full employment an increase in the price level will:

Accepted Answer

A)  not alter the economy's full-employment real GDP. 
B)  increase the economy's full-employment real GDP. 
C)  reduce the quantity of goods and services purchasers will demand. 
D)  improve the overall efficiency of resource use. 
A)  not alter the economy's full-employment real GDP. 
B)  increase the economy's full-employment real GDP. 
C)  reduce the quantity of goods and services purchasers will demand. 
D)  improve the overall efficiency of resource use.

Question 2

For an economy, aggregate demand equals:

Accepted Answer

A)  consumption plus investment plus government spending plus exports. 
B)  consumption plus investment plus government spending plus (exports minus imports). 
C)  consumption plus investment plus (taxes minus transfers) plus (exports minus imports). 
D)  consumption plus investment plus government spending plus net exports (imports minus exports). 
A)  consumption plus investment plus government spending plus exports. 
B)  consumption plus investment plus government spending plus (exports minus imports). 
C)  consumption plus investment plus (taxes minus transfers) plus (exports minus imports). 
D)  consumption plus investment plus government spending plus net exports (imports minus exports).

Question 3

Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:

Accepted Answer

A)  aggregate demand will decrease. 
B)  aggregate demand will increase. 
C)  long-run aggregate supply will increase. 
D)  long-run aggregate supply will decrease. 
A)  aggregate demand will decrease. 
B)  aggregate demand will increase. 
C)  long-run aggregate supply will increase. 
D)  long-run aggregate supply will decrease.

Question 4

In the United States during the 1960s, government spending dramatically increased to fight the Vietnam War, which resulted in:

Accepted Answer

A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  a disinflationary recession. 
D)  stagflation. 
A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  a disinflationary recession. 
D)  stagflation.

Question 5

The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:

Accepted Answer

A)  decrease in supply in the loanable funds market. 
B)  large federal budget deficit. 
C)  increase in short-run aggregate supply. 
D)  downward-sloping aggregate demand curve. 
A)  decrease in supply in the loanable funds market. 
B)  large federal budget deficit. 
C)  increase in short-run aggregate supply. 
D)  downward-sloping aggregate demand curve.

Question 6

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

Accepted Answer

A)  The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B)  The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C)  The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D)  The cost-pull effect: As costs of production rise, consumers are pulled to buy more of the products they want most. 
A)  The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B)  The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C)  The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D)  The cost-pull effect: As costs of production rise, consumers are pulled to buy more of the products they want most.

Question 7

In the aggregate demand/aggregate supply model, a country's full-employment real GDP is represented by:

Accepted Answer

A)  prices. 
B)  aggregate demand. 
C)  aggregate supply. 
D)  an increase in the general level of prices. 
A)  prices. 
B)  aggregate demand. 
C)  aggregate supply. 
D)  an increase in the general level of prices.

Question 8

According to the interest rate effect, as the price level rises,:

Accepted Answer

A)  people feel poorer and buy less. 
B)  United States products become more expensive and foreigners buy less U.S. goods. 
C)  interest rates fall, and people buy less. 
D)  interest rates rise, and people buy less. 
A)  people feel poorer and buy less. 
B)  United States products become more expensive and foreigners buy less U.S. goods. 
C)  interest rates fall, and people buy less. 
D)  interest rates rise, and people buy less.

Question 9

Given aggregate demand, a decrease in aggregate supply creates:

Accepted Answer

A)  a higher price level and a higher GDP level. 
B)  a lower price level and a higher GDP level. 
C)  cost-push inflation. 
D)  demand-pull inflation. 
A)  a higher price level and a higher GDP level. 
B)  a lower price level and a higher GDP level. 
C)  cost-push inflation. 
D)  demand-pull inflation.

Question 10

Exhibit 10-4 Aggregate supply and demand curves
 
The increase in the price level as the economy moves from E1 to E2 in Exhibit 10-4 represents:

Accepted Answer

A)  cost-push inflation. 
B)  demand-shock inflation. 
C)  wage push inflation. 
D)  demand-pull inflation. 
A)  cost-push inflation. 
B)  demand-shock inflation. 
C)  wage push inflation. 
D)  demand-pull inflation.

Question 11

In the intermediate range of the aggregate supply curve, higher aggregate demand will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  real GDP without raising the price level. 
C)  the price level without affecting real GDP. 
D)  the price level but reduce real GDP. 
A)  both the price level and real GDP. 
B)  real GDP without raising the price level. 
C)  the price level without affecting real GDP. 
D)  the price level but reduce real GDP.

Question 12

The net exports effect is the ____ relationship between net exports and the price level of an economy.

Accepted Answer

A)  inverse 
B)  independent 
C)  direct 
D)  linear 
A)  inverse 
B)  independent 
C)  direct 
D)  linear

Question 13

As prices rise, people will buy fewer goods and services because:

Accepted Answer

A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased. 
A)  the interest rate has declined. 
B)  aggregate demand has increased. 
C)  the purchasing power of the fixed quantity of money has declined. 
D)  the income of households has increased.

Question 14

In the upward-sloping segment of the aggregate supply curve,

Accepted Answer

A)  increases in output are linked to decreases in the price level. 
B)  firms are willing to pay higher wages to get more labor. 
C)  producers can hire more workers without having to raise the wage rate. 
D)  the economy can increase aggregate supply without prices going up. 
A)  increases in output are linked to decreases in the price level. 
B)  firms are willing to pay higher wages to get more labor. 
C)  producers can hire more workers without having to raise the wage rate. 
D)  the economy can increase aggregate supply without prices going up.

Exam 20: Aggregate Demand and Supply

The vertical portion of the aggregate supply curve shows that at full employment an increase in the price level will:

For an economy, aggregate demand equals:

Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:

In the United States during the 1960s, government spending dramatically increased to fight the Vietnam War, which resulted in:

The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

In the aggregate demand/aggregate supply model, a country's full-employment real GDP is represented by:

According to the interest rate effect, as the price level rises,:

Given aggregate demand, a decrease in aggregate supply creates:

Exhibit 10-4 Aggregate supply and demand curves The increase in the price level as the economy moves from E1 to E2 in Exhibit 10-4 represents:

In the intermediate range of the aggregate supply curve, higher aggregate demand will increase:

The net exports effect is the ____ relationship between net exports and the price level of an economy.

As prices rise, people will buy fewer goods and services because:

In the upward-sloping segment of the aggregate supply curve,

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 10-4 Aggregate supply and demand curves The increase in the price level as the economy moves from E₁ to E₂ in Exhibit 10-4 represents: