Question 1

Disposable income is aggregate income

Accepted Answer

A) minus taxes and benefits. 
B) minus taxes plus transfer payments. 
C) minus fixed expenses such as rent and utilities. 
D) plus transfer payments. 
E) minus taxes. 
A) minus taxes and benefits. 
B) minus taxes plus transfer payments. 
C) minus fixed expenses such as rent and utilities. 
D) plus transfer payments. 
E) minus taxes.

Question 2

If the money wage rate falls, then

Accepted Answer

A) the AD curve shifts rightward. 
B) firms hire less labour. 
C) the LAS curve shifts rightward. 
D) the SAS curve shifts rightward. 
E) the LAS curve and the SAS curve shift rightward. 
A) the AD curve shifts rightward. 
B) firms hire less labour. 
C) the LAS curve shifts rightward. 
D) the SAS curve shifts rightward. 
E) the LAS curve and the SAS curve shift rightward.

Question 3

Use the figure below to answer the following questions.
   
Figure 26.3.3
-Refer to Figure 26.3.3. Which one of the graphs illustrates a full-employment equilibrium?

Accepted Answer

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

Question 4

Everything else remaining the same, an increase in the quantity of money

Accepted Answer

A) shifts the aggregate demand curve rightward. 
B) shifts the aggregate demand curve leftward. 
C) shifts the aggregate supply curve leftward. 
D) shifts the aggregate supply curve rightward. 
E) creates a movement down along the aggregate demand curve. 
A) shifts the aggregate demand curve rightward. 
B) shifts the aggregate demand curve leftward. 
C) shifts the aggregate supply curve leftward. 
D) shifts the aggregate supply curve rightward. 
E) creates a movement down along the aggregate demand curve.

Question 5

We observe an increase 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 6

Suppose there is an increase in the quantity of capital. As a result, the SAS

Accepted Answer

A) and the LAS curves both shift leftward. 
B) and the LAS curves both shift rightward. 
C) curve does not shift but the LAS curve shifts rightward. 
D) curve does not shift but the LAS curve shifts leftward. 
E) curve shifts rightward, but the LAS curve does not shift. 
A) and the LAS curves both shift leftward. 
B) and the LAS curves both shift rightward. 
C) curve does not shift but the LAS curve shifts rightward. 
D) curve does not shift but the LAS curve shifts leftward. 
E) curve shifts rightward, but the LAS curve does not shift.

Question 7

Which one of the following variables can change without creating a shift of the aggregate demand curve?

Accepted Answer

A) the interest rate 
B) price level 
C) the tax rate 
D) expectations about inflation 
E) monetary policy 
A) the interest rate 
B) price level 
C) the tax rate 
D) expectations about inflation 
E) monetary policy

Question 8

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 rise and real GDP will fall, all else remaining the same?

Accepted Answer

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

Question 9

Use the figure below to answer the following questions.
   
Figure 26.3.3
-Refer to Figure 26.3.3(a). You might expect the government to

Accepted Answer

A) do nothing except maintain the current equilibrium. 
B) cut government expenditure. 
C) increase government expenditure. 
D) pursue trade policies that reduce exports. 
E) raise taxes. 
A) do nothing except maintain the current equilibrium. 
B) cut government expenditure. 
C) increase government expenditure. 
D) pursue trade policies that reduce exports. 
E) raise taxes.

Question 10

The quantity of real GDP demanded is the sum of real consumption expenditure (C), investment (I),

Accepted Answer

A) government expenditure (G), exports (X), and imports (M). 
B) government expenditure (G), and exports (X)minus imports (M). 
C) exports (X), and imports (M). 
D) and exports (X)minus imports (M). 
E) and government expenditure (G). 
A) government expenditure (G), exports (X), and imports (M). 
B) government expenditure (G), and exports (X)minus imports (M). 
C) exports (X), and imports (M). 
D) and exports (X)minus imports (M). 
E) and government expenditure (G).

Question 11

When the actual unemployment rate is equal to the natural unemployment rate, then the

Accepted Answer

A) inflation rate must be zero. 
B) long-run aggregate supply curve is upward sloping. 
C) short-run aggregate supply curve is vertical. 
D) economy is operating at potential GDP. 
E) the money wage rate will rise. 
A) inflation rate must be zero. 
B) long-run aggregate supply curve is upward sloping. 
C) short-run aggregate supply curve is vertical. 
D) economy is operating at potential GDP. 
E) the money wage rate will rise.

Question 12

Use the figure below to answer the following questions.
   
Figure 26.3.1
-Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The economy of Econoworld is experiencing a below full-employment equilibrium.
(2) The actual unemployment rate equals the natural unemployment rate.

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 true; (2)is true if the natural unemployment rate is too high. 
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 true; (2)is true if the natural unemployment rate is too high.

Question 13

Use the table below to answer the following questions.
Table 26.3.1
  
-Refer to Table 26.3.1. Consider the economy represented in the table. There is

Accepted Answer

A) an inflationary gap equal to $100 billion. 
B) an inflationary gap equal to $50 billion. 
C) a recessionary gap equal to $50 billion. 
D) a recessionary gap equal to $100 billion. 
E) neither an inflationary nor a recessionary gap because the economy is at full employment. 
A) an inflationary gap equal to $100 billion. 
B) an inflationary gap equal to $50 billion. 
C) a recessionary gap equal to $50 billion. 
D) a recessionary gap equal to $100 billion. 
E) neither an inflationary nor a recessionary gap because the economy is at full employment.

Question 14

Use the table below to answer the following questions.
Table 26.3.1
  
-Refer to Table 26.3.1. Consider the economy represented in the table. In short-run macroeconomic equilibrium, the price level is ________ and the level of real GDP is ________ billion.

Accepted Answer

A) 120; $600 
B) 120; $500 
C) 125; $550 
D) 130; $600 
E) 130; $500 
A) 120; $600 
B) 120; $500 
C) 125; $550 
D) 130; $600 
E) 130; $500

Question 15

Use the figure below to answer the following questions.
   
Figure 26.3.5
-Refer to Figure 26.3.5. At point B the economy has

Accepted Answer

A) an inflationary gap with real GDP in excess of potential GDP. 
B) an inflationary gap with real GDP less than potential GDP. 
C) a recessionary gap with real GDP in excess of potential GDP. 
D) a recessionary gap with real GDP less than potential GDP. 
E) neither an inflationary gap nor a recessionary gap. 
A) an inflationary gap with real GDP in excess of potential GDP. 
B) an inflationary gap with real GDP less than potential GDP. 
C) a recessionary gap with real GDP in excess of potential GDP. 
D) a recessionary gap with real GDP less than potential GDP. 
E) neither an inflationary gap nor a recessionary gap.

Question 16

All of the following will raise the price level except

Accepted Answer

A) aggregate demand increases and short-run aggregate supply decreases. 
B) aggregate demand increases. 
C) short-run aggregate supply decreases. 
D) an increase in the quantity of capital. 
E) an increase in the quantity of money. 
A) aggregate demand increases and short-run aggregate supply decreases. 
B) aggregate demand increases. 
C) short-run aggregate supply decreases. 
D) an increase in the quantity of capital. 
E) an increase in the quantity of money.

Question 17

Consider the following events: Event 1: Growth in the world economy slows.
Event 2: The world price of oil rises.
Event 3: Canadian labour productivity declines.
Choose the statement that is correct.

Accepted Answer

A) A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events. 
B) All macroeconomists believe that the economy requires active fiscal policy and monetary policy to keep the economy out of recession. 
C) A classical macroeconomist and a monetarist recommend an increase in the quantity of money for all events. 
D) A Keynesian recommends no action for all of the events. 
E) A Keynesian recommends active fiscal policy but not monetary policy for events 1 and 2 and monetary policy but not fiscal policy for event 3. 
A) A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events. 
B) All macroeconomists believe that the economy requires active fiscal policy and monetary policy to keep the economy out of recession. 
C) A classical macroeconomist and a monetarist recommend an increase in the quantity of money for all events. 
D) A Keynesian recommends no action for all of the events. 
E) A Keynesian recommends active fiscal policy but not monetary policy for events 1 and 2 and monetary policy but not fiscal policy for event 3.

Question 18

Use the table below to answer the following question.
Table 26.3.2
  
-Refer to Table 26.3.2. The International Monetary Fund's World Economic Outlook database provides the data given in the table for India in 2004, 2005 and 2006. The numbers in the table are consistent with

Accepted Answer

A) increases in long-run and short-run aggregate supply and even greater increases in aggregate demand. 
B) increases in short-run aggregate supply and increases in aggregate demand, but the increases in aggregate demand are smaller than the increases in short-run aggregate supply. 
C) increases in long-run and short-run aggregate supply and even larger decreases in aggregate demand. 
D) decreases in long-run and short-run aggregate supply and even greater decreases in aggregate demand. 
E) increases in short-run aggregate supply and no change in aggregate demand. 
A) increases in long-run and short-run aggregate supply and even greater increases in aggregate demand. 
B) increases in short-run aggregate supply and increases in aggregate demand, but the increases in aggregate demand are smaller than the increases in short-run aggregate supply. 
C) increases in long-run and short-run aggregate supply and even larger decreases in aggregate demand. 
D) decreases in long-run and short-run aggregate supply and even greater decreases in aggregate demand. 
E) increases in short-run aggregate supply and no change in aggregate demand.

Question 19

Use the figure below to answer the following questions.
   
Figure 26.3.3
-Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium?

Accepted Answer

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

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 government expenditure decreases?

Accepted Answer

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

Exam 26: Aggregate Supply and Aggregate Demand

Disposable income is aggregate income

If the money wage rate falls, then

Use the figure below to answer the following questions. Figure 26.3.3 -Refer to Figure 26.3.3. Which one of the graphs illustrates a full-employment equilibrium?

Everything else remaining the same, an increase in the quantity of money

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

Suppose there is an increase in the quantity of capital. As a result, the SAS

Which one of the following variables can change without creating a shift of the aggregate demand curve?

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 rise and real GDP will fall, all else remaining the same?

Use the figure below to answer the following questions. Figure 26.3.3 -Refer to Figure 26.3.3(a). You might expect the government to

The quantity of real GDP demanded is the sum of real consumption expenditure (C), investment (I),

When the actual unemployment rate is equal to the natural unemployment rate, then the

Use the table below to answer the following questions. Table 26.3.1 -Refer to Table 26.3.1. Consider the economy represented in the table. There is

Use the table below to answer the following questions. Table 26.3.1 -Refer to Table 26.3.1. Consider the economy represented in the table. In short-run macroeconomic equilibrium, the price level is ________ and the level of real GDP is ________ billion.

Use the figure below to answer the following questions. Figure 26.3.5 -Refer to Figure 26.3.5. At point B the economy has

All of the following will raise the price level except

Consider the following events: Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: Canadian labour productivity declines. Choose the statement that is correct.

Use the table below to answer the following question. Table 26.3.2 -Refer to Table 26.3.2. The International Monetary Fund's World Economic Outlook database provides the data given in the table for India in 2004, 2005 and 2006. The numbers in the table are consistent with

Use the figure below to answer the following questions. Figure 26.3.3 -Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment 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 government expenditure decreases?

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

Filters

Use the table below to answer the following questions. Table 26.3.1 -Refer to Table 26.3.1. Consider the economy represented in the table. In short-run macroeconomic equilibrium, the price level is and the level of real GDP is billion.