Question 1

If the economy begins at full employment and then aggregate demand decreases,

Accepted Answer

A)  potential GDP decreases to fill the resultant deflationary gap. 
B)  a recessionary gap is created and the AS curve shifts rightward as the money wage rate falls. 
C)  a recessionary gap is created shifting the AD curve rightward. 
D)  an inflationary gap is created shifting the AS curve leftward as the money wage rate rises. 
E)  an inflationary gap is created shifting the AD curve rightward. 
A)  potential GDP decreases to fill the resultant deflationary gap. 
B)  a recessionary gap is created and the AS curve shifts rightward as the money wage rate falls. 
C)  a recessionary gap is created shifting the AD curve rightward. 
D)  an inflationary gap is created shifting the AS curve leftward as the money wage rate rises. 
E)  an inflationary gap is created shifting the AD curve rightward.

Question 2

State how shifts in the aggregate demand curve can explain the movement of real GDP around potential GDP.

Accepted Answer

When the aggregate demand curve and the

Question 3

$$\begin{array} { c c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator) }
\end{array} & \begin{array} { c } 
\text { Potential GDP } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP supplied } \
\text { (billions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP demanded } \
\text { (billions of 2005 dollars) }
\end{array} \
\hline 150 & 25 & 34 & 16 \
140 & 25 & 31 & 19 \
130 & 25 & 28 & 22 \
120 & 25 & 25 & 25 \
110 & 25 & 23 & 28 \
\hline
\end{array}$$
-The table above gives data for the nation of Pearl, a small island in the South Pacific.When the economy is at full employment the price level is

Accepted Answer

A)  130. 
B)  120. 
C)  110. 
D)  140. 
E)  150. 
A)  130. 
B)  120. 
C)  110. 
D)  140. 
E)  150.

Question 4

A combination of recession and inflation is called

Accepted Answer

A)  an expansion. 
B)  stagflation. 
C)  a business cycle. 
D)  depression. 
E)  a recession. 
A)  an expansion. 
B)  stagflation. 
C)  a business cycle. 
D)  depression. 
E)  a recession.

Question 5

Starting from a situation of full employment, an increase in aggregate demand creates ________ and ________ the price level.

Accepted Answer

A)  an inflationary gap; raises 
B)  a recessionary gap; lowers 
C)  a recessionary gap; raises 
D)  an inflationary gap; lowers 
E)  a recessionary gap; does not change 
A)  an inflationary gap; raises 
B)  a recessionary gap; lowers 
C)  a recessionary gap; raises 
D)  an inflationary gap; lowers 
E)  a recessionary gap; does not change

Question 6

Can actual real GDP exceed potential GDP?

Accepted Answer

Yes, actual real GDP temporari

Question 7

The money wage rate is constant when moving along

Accepted Answer

A)  only the aggregate supply curve. 
B)  only the aggregate supply curve and the potential GDP line. 
C)  only the potential GDP line. 
D)  neither the aggregate supply curve nor the potential GDP line. 
E)  the aggregate supply curve, the potential GDP line, and the aggregate demand curve. 
A)  only the aggregate supply curve. 
B)  only the aggregate supply curve and the potential GDP line. 
C)  only the potential GDP line. 
D)  neither the aggregate supply curve nor the potential GDP line. 
E)  the aggregate supply curve, the potential GDP line, and the aggregate demand curve.

Question 8

A rise in the price level produces a ________ the potential GDP line.

Accepted Answer

A)  rightward shift of 
B)  movement downward along 
C)  leftward shift of 
D)  movement upward along 
E)  neither a shift of the potential GDP line nor a movement along 
A)  rightward shift of 
B)  movement downward along 
C)  leftward shift of 
D)  movement upward along 
E)  neither a shift of the potential GDP line nor a movement along

Question 9

Aggregate demand ________ and shifts the AD curve ________ when ________.

Accepted Answer

A)  decreases; leftward; the price level rises 
B)  increases; leftward; taxes increase 
C)  increases; rightward; foreign incomes increase 
D)  decreases; rightward; government expenditure increases 
E)  increases; rightward; taxes increase 
A)  decreases; leftward; the price level rises 
B)  increases; leftward; taxes increase 
C)  increases; rightward; foreign incomes increase 
D)  decreases; rightward; government expenditure increases 
E)  increases; rightward; taxes increase

Question 10

When the price level rises and the money wage rate does not change,

Accepted Answer

A)  the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change. 
B)  the quantity of real GDP supplied decreases as more businesses fail and potential GDP does not change. 
C)  profits fall and more businesses fail. 
D)  existing businesses do not change their level of output. 
E)  the quantity of potential GDP increases because the quantity of real GDP supplied increases. 
A)  the quantity of real GDP supplied increases as more businesses start up and potential GDP does not change. 
B)  the quantity of real GDP supplied decreases as more businesses fail and potential GDP does not change. 
C)  profits fall and more businesses fail. 
D)  existing businesses do not change their level of output. 
E)  the quantity of potential GDP increases because the quantity of real GDP supplied increases.

Question 11

How does an increase in the price level affect the aggregate quantity of goods and services demanded?

Accepted Answer

An increase in the price level decreases

Question 12

Which of the following shifts the aggregate demand curve leftward?

Accepted Answer

A)  a decrease in government expenditure on goods and services 
B)  an increase in the price level 
C)  a tax cut 
D)  an increase in foreign income 
E)  a decrease in the price level 
A)  a decrease in government expenditure on goods and services 
B)  an increase in the price level 
C)  a tax cut 
D)  an increase in foreign income 
E)  a decrease in the price level

Question 13

Explain how fluctuations in aggregate supply impact real GDP.

Accepted Answer

Fluctuations in aggregate supply result

Question 14

An increase in government expenditure on goods and services ________ aggregate demand, shifting the aggregate demand curve ________ and potentially bringing the ________ phase of the business cycle.

Accepted Answer

A)  decreases; rightward; expansion 
B)  increases; rightward; recession 
C)  decreases; leftward; recession 
D)  increases; rightward; expansion 
E)  increases; leftward; recession 
A)  decreases; rightward; expansion 
B)  increases; rightward; recession 
C)  decreases; leftward; recession 
D)  increases; rightward; expansion 
E)  increases; leftward; recession

Question 15

-In the figure above, the shift in the aggregate demand curve from AD₁ to AD₂ could be result of

Accepted Answer

A)  a fall in the price level. 
B)  a decrease in the quantity of money. 
C)  an increase in government expenditures on goods and services. 
D)  an increase in taxes. 
E)  a rise in the price level. 
A)  a fall in the price level. 
B)  a decrease in the quantity of money. 
C)  an increase in government expenditures on goods and services. 
D)  an increase in taxes. 
E)  a rise in the price level.

Question 16

A rise in the money wage rate shifts the

Accepted Answer

A)  AD curve rightward. 
B)  AD curve leftward. 
C)  AS curve rightward. 
D)  AS curve leftward. 
E)  potential GDP curve rightward. 
A)  AD curve rightward. 
B)  AD curve leftward. 
C)  AS curve rightward. 
D)  AS curve leftward. 
E)  potential GDP curve rightward.

Question 17

Changes in which of the following do NOT shift the AS curve?
i. the price level
ii. potential GDP
iii. the money wage rate

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  i, ii, and iii 
A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  i, ii, and iii

Question 18

A recessionary gap occurs when ________ so that real GDP is ________ potential GDP.

Accepted Answer

A)  aggregate supply increases; less than 
B)  aggregate supply decreases; less than 
C)  aggregate demand increases; greater than 
D)  aggregate demand decreases; less than 
E)  potential GDP decreases; greater than 
A)  aggregate supply increases; less than 
B)  aggregate supply decreases; less than 
C)  aggregate demand increases; greater than 
D)  aggregate demand decreases; less than 
E)  potential GDP decreases; greater than

Question 19

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from ________ and the government policy to eliminate this gap will ________ real GDP and to ________ the price level.

Accepted Answer

A)  an inflationary gap; increase; increase 
B)  a recessionary gap; decrease; decrease 
C)  an inflationary gap; increase; decrease 
D)  a recessionary gap; increase; decrease 
E)  an inflationary gap; decrease; decrease 
A)  an inflationary gap; increase; increase 
B)  a recessionary gap; decrease; decrease 
C)  an inflationary gap; increase; decrease 
D)  a recessionary gap; increase; decrease 
E)  an inflationary gap; decrease; decrease

Question 20

________ increases potential GDP.

Accepted Answer

A)  A decrease in the money wage rate 
B)  A recessionary gap 
C)  A recession 
D)  An increase in the amount of human capital 
E)  An increase in aggregate demand 
A)  A decrease in the money wage rate 
B)  A recessionary gap 
C)  A recession 
D)  An increase in the amount of human capital 
E)  An increase in aggregate demand

If the economy begins at full employment and then aggregate demand decreases,

State how shifts in the aggregate demand curve can explain the movement of real GDP around potential GDP.

A combination of recession and inflation is called

Starting from a situation of full employment, an increase in aggregate demand creates and the price level.

Can actual real GDP exceed potential GDP?

The money wage rate is constant when moving along

A rise in the price level produces a ________ the potential GDP line.

Aggregate demand and shifts the AD curve when .

When the price level rises and the money wage rate does not change,

How does an increase in the price level affect the aggregate quantity of goods and services demanded?

Which of the following shifts the aggregate demand curve leftward?

Explain how fluctuations in aggregate supply impact real GDP.

An increase in government expenditure on goods and services aggregate demand, shifting the aggregate demand curve and potentially bringing the phase of the business cycle.

-In the figure above, the shift in the aggregate demand curve from AD₁ to AD₂ could be result of

A rise in the money wage rate shifts the

Changes in which of the following do NOT shift the AS curve? i. the price level ii. potential GDP iii. the money wage rate

A recessionary gap occurs when so that real GDP is potential GDP.

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from and the government policy to eliminate this gap will real GDP and to the price level.

________ increases potential GDP.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 13: Aggregate Supply and Aggregate Demand

If the economy begins at full employment and then aggregate demand decreases,

State how shifts in the aggregate demand curve can explain the movement of real GDP around potential GDP.

A combination of recession and inflation is called

Starting from a situation of full employment, an increase in aggregate demand creates ________ and ________ the price level.

Can actual real GDP exceed potential GDP?

The money wage rate is constant when moving along

A rise in the price level produces a ________ the potential GDP line.

Aggregate demand ________ and shifts the AD curve ________ when ________.

When the price level rises and the money wage rate does not change,

How does an increase in the price level affect the aggregate quantity of goods and services demanded?

Which of the following shifts the aggregate demand curve leftward?

Explain how fluctuations in aggregate supply impact real GDP.

An increase in government expenditure on goods and services ________ aggregate demand, shifting the aggregate demand curve ________ and potentially bringing the ________ phase of the business cycle.

-In the figure above, the shift in the aggregate demand curve from AD₁ to AD₂ could be result of

A rise in the money wage rate shifts the

Changes in which of the following do NOT shift the AS curve? i. the price level ii. potential GDP iii. the money wage rate

A recessionary gap occurs when ________ so that real GDP is ________ potential GDP.

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from ________ and the government policy to eliminate this gap will ________ real GDP and to ________ the price level.

________ increases potential GDP.

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

Starting from a situation of full employment, an increase in aggregate demand creates and the price level.

Aggregate demand and shifts the AD curve when .

An increase in government expenditure on goods and services aggregate demand, shifting the aggregate demand curve and potentially bringing the phase of the business cycle.

A recessionary gap occurs when so that real GDP is potential GDP.

When the macroeconomic equilibrium is such that real GDP exceeds potential real GDP, the economy is suffering from and the government policy to eliminate this gap will real GDP and to the price level.