Question 1

Which of the following are inherent in classical theory?

Accepted Answer

A)  Flexible prices. 
B)  Flexible wages. 
C)  Long-run full employment. 
D)  All of the above. 
A)  Flexible prices. 
B)  Flexible wages. 
C)  Long-run full employment. 
D)  All of the above.

Question 2

Along the Keynesian range of the aggregate supply curve,an increase in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level. 
A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level.

Question 3

The real balances effect predicts that higher prices:

Accepted Answer

A)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
B)  make people worse off by reducing the value of their wealth, leading them to save less and spend more. 
C)  make people better off by increasing the value of their wealth, leading them to save less and spend more. 
D)  increase borrowing, leading to higher interest rates and less investment. 
E)  make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods. 
A)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
B)  make people worse off by reducing the value of their wealth, leading them to save less and spend more. 
C)  make people better off by increasing the value of their wealth, leading them to save less and spend more. 
D)  increase borrowing, leading to higher interest rates and less investment. 
E)  make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods.

Question 4

An increase in oil prices will shift the aggregate:

Accepted Answer

A)  demand curve leftward. 
B)  demand curve rightward. 
C)  supply curve leftward. 
D)  supply curve rightward. 
A)  demand curve leftward. 
B)  demand curve rightward. 
C)  supply curve leftward. 
D)  supply curve rightward.

Question 5

Exhibit 14-8 Aggregate demand and supply
  
-In Exhibit 14-8,if aggregate demand shifts from AD₂ to AD₁,real GDP will:

Accepted Answer

A)  fall from $4.0 to $3.0, and the price level will fall from 120 to 100. 
B)  fall from $4.0 to $3.0, and the price level will not change. 
C)  fall from $7.0 to $4.0, and the price level will not change. 
D)  not change, and the price level will not change. 
E)  fall from $4.0 to $3.0, and the price level will fall from 170 to 100. 
A)  fall from $4.0 to $3.0, and the price level will fall from 120 to 100. 
B)  fall from $4.0 to $3.0, and the price level will not change. 
C)  fall from $7.0 to $4.0, and the price level will not change. 
D)  not change, and the price level will not change. 
E)  fall from $4.0 to $3.0, and the price level will fall from 170 to 100.

Question 6

Demand-pull inflation is associated with a(n):

Accepted Answer

A)  decrease in the aggregate supply curve. 
B)  increase in the aggregate supply curve. 
C)  increase in the aggregate demand curve. 
D)  decrease in the aggregate demand curve. 
E)  decline in the availability of a productive resource 
A)  decrease in the aggregate supply curve. 
B)  increase in the aggregate supply curve. 
C)  increase in the aggregate demand curve. 
D)  decrease in the aggregate demand curve. 
E)  decline in the availability of a productive resource

Question 7

Exhibit 14-1 Aggregate supply curve
  
-In Exhibit 14-1,higher price levels allow producers to earn higher profits,stimulating production and employment in:

Accepted Answer

A)  the segment labeled ab. 
B)  the segment labeled bc. 
C)  the segment labeled cd. 
D)  both segment bc and segment cd. 
E)  the entire curve. 
A)  the segment labeled ab. 
B)  the segment labeled bc. 
C)  the segment labeled cd. 
D)  both segment bc and segment cd. 
E)  the entire curve.

Question 8

The horizontal segment of the aggregate supply curve:

Accepted Answer

A)  shows that real GDP can increase only by affecting the economy's price level. 
B)  shows that real GDP can increase without affecting the economy's price level. 
C)  depicts a positive relationship between real GDP and the price level. 
D)  depicts a negative relationship between real GDP and the price level. 
E)  marks the full-employment level of real GDP. 
A)  shows that real GDP can increase only by affecting the economy's price level. 
B)  shows that real GDP can increase without affecting the economy's price level. 
C)  depicts a positive relationship between real GDP and the price level. 
D)  depicts a negative relationship between real GDP and the price level. 
E)  marks the full-employment level of real GDP.

Question 9

Aggregate supply increases when:

Accepted Answer

A)  wage rates or interest rates decrease while the economy's price level remains unchanged. 
B)  resource availability is reduced. 
C)  there are fewer workers. 
D)  there is less capital and the price level remains unchanged. 
E)  there are increased inflationary expectations of labor. 
A)  wage rates or interest rates decrease while the economy's price level remains unchanged. 
B)  resource availability is reduced. 
C)  there are fewer workers. 
D)  there is less capital and the price level remains unchanged. 
E)  there are increased inflationary expectations of labor.

Question 10

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 11

Exhibit 14-8 Aggregate demand and supply
  
-In Exhibit 14-8,if aggregate demand shifts from AD₅ to AD₄,real GDP will:

Accepted Answer

A)  not change, and the price level will fall from 170 to 100. 
B)  not change, and the price level will fall from 140 to 100. 
C)  fall from $8.0 to $6.0, and the price level will not change. 
D)  fall from $8.0 to $6.0, and the price level will fall from 140 to 120. 
E)  not change, and the price level will fall from 170 to 140. 
A)  not change, and the price level will fall from 170 to 100. 
B)  not change, and the price level will fall from 140 to 100. 
C)  fall from $8.0 to $6.0, and the price level will not change. 
D)  fall from $8.0 to $6.0, and the price level will fall from 140 to 120. 
E)  not change, and the price level will fall from 170 to 140.

Question 12

The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption is known as the:

Accepted Answer

A)  real balances effect. 
B)  interest rate effect. 
C)  foreign purchases effect. 
D)  income effect. 
E)  aggregate demand effect. 
A)  real balances effect. 
B)  interest rate effect. 
C)  foreign purchases effect. 
D)  income effect. 
E)  aggregate demand effect.

Question 13

The total quantity of goods and services demanded by households,firms,foreigners,and government at varying price levels is:

Accepted Answer

A)  gross domestic product. 
B)  aggregate demand. 
C)  aggregate expenditure. 
D)  total demand. 
E)  total expenditure. 
A)  gross domestic product. 
B)  aggregate demand. 
C)  aggregate expenditure. 
D)  total demand. 
E)  total expenditure.

Question 14

The aggregate demand curve will shift rightward when there is:

Accepted Answer

A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise. 
A)  a decrease in government spending. 
B)  a decrease in incomes abroad. 
C)  a tax increase. 
D)  the expectation that future consumer income will rise.

Question 15

Exhibit 14-6 Aggregate supply curve
  
-In Exhibit 14-6,the aggregate supply curve becomes vertical at GDP = $1,200 because:

Accepted Answer

A)  there are no more workers available at any wage rate to increase real GDP. 
B)  the price level remains constant. 
C)  the only workers available would demand higher wage rates. 
D)  the economy is experiencing low employment and low production. 
E)  the Treasury is no longer allowed to explain away the deficit with creative accounting 
A)  there are no more workers available at any wage rate to increase real GDP. 
B)  the price level remains constant. 
C)  the only workers available would demand higher wage rates. 
D)  the economy is experiencing low employment and low production. 
E)  the Treasury is no longer allowed to explain away the deficit with creative accounting

Question 16

The real balances effect is the impact on real GDP caused by the ____ relationship between the price level and the real value of financial assets.

Accepted Answer

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

Question 17

Lower taxes on businesses will shift the aggregate:

Accepted Answer

A)  demand curve rightward. 
B)  demand curve leftward. 
C)  supply curve rightward. 
D)  supply curve leftward. 
A)  demand curve rightward. 
B)  demand curve leftward. 
C)  supply curve rightward. 
D)  supply curve leftward.

Question 18

The aggregate supply curve reflects the relationship between the price:

Accepted Answer

A)  of a particular good and the quantity supplied by all firms producing that good. 
B)  of a particular good and the quantity supplied by the aggregate economy. 
C)  level and the quantity supplied of all goods in the economy. 
D)  level and the quantity of all goods purchased in the economy. 
A)  of a particular good and the quantity supplied by all firms producing that good. 
B)  of a particular good and the quantity supplied by the aggregate economy. 
C)  level and the quantity supplied of all goods in the economy. 
D)  level and the quantity of all goods purchased in the economy.

Question 19

According to the net exports effect,as the price level falls relative to the rest of the world,

Accepted Answer

A)  foreigners buy fewer goods. 
B)  foreigners buy more U.S. goods. 
C)  the aggregate demand curve shifts to the left. 
D)  the aggregate demand curve shifts to the right. 
E)  the supply of U.S.-made goods increases. 
A)  foreigners buy fewer goods. 
B)  foreigners buy more U.S. goods. 
C)  the aggregate demand curve shifts to the left. 
D)  the aggregate demand curve shifts to the right. 
E)  the supply of U.S.-made goods increases.

Question 20

The aggregate supply curve will shift to the right when the:

Accepted Answer

A)  amount of labor in the society decreases. 
B)  capital stock of the society shrinks. 
C)  amount of natural resources in the society gets smaller. 
D)  amount of labor in the society increases. 
E)  price level in the economy rises. 
A)  amount of labor in the society decreases. 
B)  capital stock of the society shrinks. 
C)  amount of natural resources in the society gets smaller. 
D)  amount of labor in the society increases. 
E)  price level in the economy rises.

Exam 14: Aggregate Demand and Supply

Which of the following are inherent in classical theory?

Along the Keynesian range of the aggregate supply curve,an increase in the aggregate demand curve will increase:

The real balances effect predicts that higher prices:

An increase in oil prices will shift the aggregate:

Exhibit 14-8 Aggregate demand and supply -In Exhibit 14-8,if aggregate demand shifts from AD₂ to AD₁,real GDP will:

Demand-pull inflation is associated with a(n):

Exhibit 14-1 Aggregate supply curve -In Exhibit 14-1,higher price levels allow producers to earn higher profits,stimulating production and employment in:

The horizontal segment of the aggregate supply curve:

Aggregate supply increases when:

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

Exhibit 14-8 Aggregate demand and supply -In Exhibit 14-8,if aggregate demand shifts from AD₅ to AD₄,real GDP will:

The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption is known as the:

The total quantity of goods and services demanded by households,firms,foreigners,and government at varying price levels is:

The aggregate demand curve will shift rightward when there is:

Exhibit 14-6 Aggregate supply curve -In Exhibit 14-6,the aggregate supply curve becomes vertical at GDP = $1,200 because:

The real balances effect is the impact on real GDP caused by the ____ relationship between the price level and the real value of financial assets.

Lower taxes on businesses will shift the aggregate:

The aggregate supply curve reflects the relationship between the price:

According to the net exports effect,as the price level falls relative to the rest of the world,

The aggregate supply curve will shift to the right when the:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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