Question 1

If real GDP is less than potential GDP, we would expect

Accepted Answer

A) the money wage rate to fall. 
B) the money wage rate to rise. 
C) potential GDP to increase. 
D) potential GDP to decrease. 
E) the exchange rate of the Canadian dollar to rise. 
A) the money wage rate to fall. 
B) the money wage rate to rise. 
C) potential GDP to increase. 
D) potential GDP to decrease. 
E) the exchange rate of the Canadian dollar to rise.

Question 2

Use the figure below to answer the following questions.
   
Figure 26.3.2
-Refer to Figure 26.3.2. Consider statements (1)and (2)and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate in the short run.
(2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.

Accepted Answer

A) (1)is true; (2)is false. 
B) (2)is true; (1)is false. 
C) (1)and (2)are false. 
D) (1)and (2)are true. 
E) (1)is false; (2)is true if the LAS curve shifts rightward at the same time. 
A) (1)is true; (2)is false. 
B) (2)is true; (1)is false. 
C) (1)and (2)are false. 
D) (1)and (2)are true. 
E) (1)is false; (2)is true if the LAS curve shifts rightward at the same time.

Question 3

Long-run aggregate supply will increase for all of the following reasons except

Accepted Answer

A) a fall in the money wage rate. 
B) an increase in human capital. 
C) the introduction of new technology. 
D) an increase in the full-employment quantity of labour. 
E) an increase in the quantity of capital. 
A) a fall in the money wage rate. 
B) an increase in human capital. 
C) the introduction of new technology. 
D) an increase in the full-employment quantity of labour. 
E) an increase in the quantity of capital.

Question 4

Use the figure below to answer the following questions.
   
Figure 26.3.5
-Refer to Figure 26.3.5. If the aggregate demand curve is AD₂, real GDP is

Accepted Answer

A) $13 trillion. 
B) $13.5 trillion. 
C) more than $13 trillion and less than $13.5 trillion. 
D) less than $13 trillion. 
E) 100 
A) $13 trillion. 
B) $13.5 trillion. 
C) more than $13 trillion and less than $13.5 trillion. 
D) less than $13 trillion. 
E) 100

Question 5

Consider an economy starting from a position of full employment. Which one of the following occurs as a result of an advance in technology?

Accepted Answer

A) The price level falls. 
B) Real GDP decreases in the short run. 
C) An inflationary gap arises. 
D) Factor prices rise in the long run, shifting the short-run aggregate supply curve leftward. 
E) The long-run aggregate supply curve shifts leftward to create the new long-run equilibrium. 
A) The price level falls. 
B) Real GDP decreases in the short run. 
C) An inflationary gap arises. 
D) Factor prices rise in the long run, shifting the short-run aggregate supply curve leftward. 
E) The long-run aggregate supply curve shifts leftward to create the new long-run equilibrium.

Question 6

Use the figure below to answer the following questions.
   
Figure 26.3.3
-Refer to Figure 26.3.3. In which of the graphs would we predict that eventually the price level will fall and real GDP will decrease, all else remaining the same?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) none of the graphs 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) none of the graphs

Question 7

Potential GDP

Accepted Answer

A) increases as the price level rises. 
B) is the level of real GDP when unemployment is zero. 
C) increases as the quantity of money in the economy increases. 
D) does not vary with the price level. 
E) never changes. 
A) increases as the price level rises. 
B) is the level of real GDP when unemployment is zero. 
C) increases as the quantity of money in the economy increases. 
D) does not vary with the price level. 
E) never changes.

Question 8

Canadian firms build new pipelines across the nation. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

Accepted Answer

A) The quantity of Canadian real GDP demanded increases. 
B) The quantity of Canadian real GDP demanded decreases. 
C) Canadian aggregate demand increases. 
D) Canadian aggregate demand decreases. 
E) There is no change to either the quantity of real GDP demanded or to aggregate demand. 
A) The quantity of Canadian real GDP demanded increases. 
B) The quantity of Canadian real GDP demanded decreases. 
C) Canadian aggregate demand increases. 
D) Canadian aggregate demand decreases. 
E) There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 9

Which of the following situations illustrates how fiscal policy can influence aggregate demand?

Accepted Answer

A) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases. 
B) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases. 
C) The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases. 
D) The exchange rate value of the Canadian dollar rises. As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease. 
E) The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases. 
A) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, aggregate demand decreases. 
B) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases. 
C) The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases. 
D) The exchange rate value of the Canadian dollar rises. As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease. 
E) The government increases its expenditures. The demand for loanable funds increases, which raises the real interest rate. Investment increases.

Question 10

The long-run aggregate supply curve is

Accepted Answer

A) vertical. 
B) negatively sloped. 
C) positively sloped but extremely steep. 
D) almost flat. 
E) positively sloped at low levels of real GDP and vertical at high levels of real GDP. 
A) vertical. 
B) negatively sloped. 
C) positively sloped but extremely steep. 
D) almost flat. 
E) positively sloped at low levels of real GDP and vertical at high levels of real GDP.

Question 11

Which one of the following newspaper quotations describes a movement along an LAS curve?

Accepted Answer

A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the labour force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton." 
A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the labour force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 12

The Canadian price level rises. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

Accepted Answer

A) The quantity of Canadian real GDP demanded increases. 
B) The quantity of Canadian real GDP demanded decreases. 
C) Canadian aggregate demand increases. 
D) Canadian aggregate demand decreases. 
E) There is no change to either the quantity of real GDP demanded or to aggregate demand. 
A) The quantity of Canadian real GDP demanded increases. 
B) The quantity of Canadian real GDP demanded decreases. 
C) Canadian aggregate demand increases. 
D) Canadian aggregate demand decreases. 
E) There is no change to either the quantity of real GDP demanded or to aggregate demand.

Question 13

Use the figure below to answer the following questions.
   
Figure 26.3.5
-Refer to Figure 26.3.5. When the economy is at full employment, real GDP is

Accepted Answer

A) $13 trillion. 
B) $13.5 trillion. 
C) more than $13 trillion and less than $13.5 trillion. 
D) less than $13 trillion. 
E) 100. 
A) $13 trillion. 
B) $13.5 trillion. 
C) more than $13 trillion and less than $13.5 trillion. 
D) less than $13 trillion. 
E) 100.

Question 14

We observe an increase in the price level and a decrease in real GDP. Which of the following is a possible explanation?

Accepted Answer

A) an increase in expected future profits 
B) an increase in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in the quantity of money 
A) an increase in expected future profits 
B) an increase in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in the quantity of money

Question 15

An increase in the money wage rate shifts

Accepted Answer

A) both the SAS curve and the LAS curve rightward. 
B) both the SAS curve and the LAS curve leftward. 
C) the SAS curve leftward, but leaves the LAS curve unchanged. 
D) the LAS curve rightward, but leaves the SAS curve unchanged. 
E) the SAS curve rightward, but leaves the LAS curve unchanged. 
A) both the SAS curve and the LAS curve rightward. 
B) both the SAS curve and the LAS curve leftward. 
C) the SAS curve leftward, but leaves the LAS curve unchanged. 
D) the LAS curve rightward, but leaves the SAS curve unchanged. 
E) the SAS curve rightward, but leaves the LAS curve unchanged.

Question 16

We observe a decrease in the price level and an increase in real GDP. Which of the following is a possible explanation?

Accepted Answer

A) a decrease in the quantity of money 
B) a decrease in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits 
A) a decrease in the quantity of money 
B) a decrease in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits

Question 17

Use the figure below to answer the following questions.
   
Figure 26.3.5
-Refer to Figure 26.3.5. The shift of the aggregate demand curve from AD₀ to AD₁ might have been the result of

Accepted Answer

A) an increase in government expenditure. 
B) a decrease in taxes. 
C) an increase in the quantity of money. 
D) a fall in the foreign exchange rate 
E) all of the above. 
A) an increase in government expenditure. 
B) a decrease in taxes. 
C) an increase in the quantity of money. 
D) a fall in the foreign exchange rate 
E) all of the above.

Question 18

The long-run aggregate supply curve is vertical because

Accepted Answer

A) potential GDP is independent of the price level. 
B) actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve. 
C) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. 
D) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. 
E) potential GDP never changes. 
A) potential GDP is independent of the price level. 
B) actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve. 
C) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. 
D) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. 
E) potential GDP never changes.

Question 19

Use the table below to answer the following questions.
Table 26.3.3
  
-Refer to Table 26.3.3. When the economy is at its short-run macroeconomic equilibrium,

Accepted Answer

A) the unemployment rate is below its natural rate. 
B) the unemployment rate is above its natural rate. 
C) the money wage rate will rise. 
D) the long-run aggregate supply curve will shift eventually shift leftward to return to full employment. 
E) potential GDP will eventually increase. 
A) the unemployment rate is below its natural rate. 
B) the unemployment rate is above its natural rate. 
C) the money wage rate will rise. 
D) the long-run aggregate supply curve will shift eventually shift leftward to return to full employment. 
E) potential GDP will eventually increase.

Question 20

Use the figure below to answer the following questions.
   
Figure 26.2.1
-Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money increases?

Accepted Answer

A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) Both (b)and (c) 
A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) Both (b)and (c)

Exam 26: Aggregate Supply and Aggregate Demand

If real GDP is less than potential GDP, we would expect

Long-run aggregate supply will increase for all of the following reasons except

Use the figure below to answer the following questions. Figure 26.3.5 -Refer to Figure 26.3.5. If the aggregate demand curve is AD₂, real GDP is

Consider an economy starting from a position of full employment. Which one of the following occurs as a result of an advance in technology?

Use the figure below to answer the following questions. Figure 26.3.3 -Refer to Figure 26.3.3. In which of the graphs would we predict that eventually the price level will fall and real GDP will decrease, all else remaining the same?

Potential GDP

Canadian firms build new pipelines across the nation. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

Which of the following situations illustrates how fiscal policy can influence aggregate demand?

The long-run aggregate supply curve is

Which one of the following newspaper quotations describes a movement along an LAS curve?

The Canadian price level rises. What is the effect on the quantity of real GDP demanded or aggregate demand in Canada?

Use the figure below to answer the following questions. Figure 26.3.5 -Refer to Figure 26.3.5. When the economy is at full employment, real GDP is

We observe an increase in the price level and a decrease in real GDP. Which of the following is a possible explanation?

An increase in the money wage rate shifts

We observe a decrease in the price level and an increase in real GDP. Which of the following is a possible explanation?

Use the figure below to answer the following questions. Figure 26.3.5 -Refer to Figure 26.3.5. The shift of the aggregate demand curve from AD₀ to AD₁ might have been the result of

The long-run aggregate supply curve is vertical because

Use the table below to answer the following questions. Table 26.3.3 -Refer to Table 26.3.3. When the economy is at its short-run macroeconomic equilibrium,

Use the figure below to answer the following questions. Figure 26.2.1 -Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money increases?

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

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