Question 1

The interest-rate effect is the impact on real GDP caused by the inverse relationship between the price level and the interest rate.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a component of the aggregate demand curve?

Accepted Answer

A)  Consumption (
C) . 
B)  Investment (I). 
C)  Government spending (G). 
D)  Net exports (X-M). 
E)  All of the above are components. 
A)  Consumption (
C) . 
B)  Investment (I). 
C)  Government spending (G). 
D)  Net exports (X-M). 
E)  All of the above are components.

Question 3

Which of the following will most likely cause an increase in the aggregate supply curve?

Accepted Answer

A)  a reduction in the general level of prices 
B)  an increase in the general level of prices 
C)  an improvement in technology that substantially reduces the cost of generating energy 
D)  an increase in taxes that makes it more expensive for Americans to import crude oil 
A)  a reduction in the general level of prices 
B)  an increase in the general level of prices 
C)  an improvement in technology that substantially reduces the cost of generating energy 
D)  an increase in taxes that makes it more expensive for Americans to import crude oil

Question 4

The aggregate supply curve relating the price level to real GDP has three distinguishing segments.Which one of the following indicates the segments?

Accepted Answer

A)  The horizontal segment reflects the increasing pressure on the price level as firms bid for resources. The upward-sloping segment reflects the availability of unused resources. The vertical segment reflects the full employment of all resources. 
B)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects the full employment of all resources. The vertical segment reflects the increasing pressure on the price level as firms bid for resources. 
C)  The horizontal segment reflects the full employment of all resources. The upward-sloping segment reflects the increasing pressure on the price level as firms bid for resources. The vertical segment reflects the availability of unused resources. 
D)  The horizontal segment reflects the availability of unused resources. The downward-sloping segment reflects decreasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources. 
E)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources. 
A)  The horizontal segment reflects the increasing pressure on the price level as firms bid for resources. The upward-sloping segment reflects the availability of unused resources. The vertical segment reflects the full employment of all resources. 
B)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects the full employment of all resources. The vertical segment reflects the increasing pressure on the price level as firms bid for resources. 
C)  The horizontal segment reflects the full employment of all resources. The upward-sloping segment reflects the increasing pressure on the price level as firms bid for resources. The vertical segment reflects the availability of unused resources. 
D)  The horizontal segment reflects the availability of unused resources. The downward-sloping segment reflects decreasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources. 
E)  The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.

Question 5

An increase in the per unit costs of production within an economy will cause the aggregate supply curve to shift to the right.

Accepted Answer

A) True 
 B)False

Question 6

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Accepted Answer

A)  People's desire to maintain real wealth holdings, the interest rate, and international trade. 
B)  People's desire to increase the price level, the interest rate, and the economic growth effect. 
C)  The interest rate, the economic growth effect, and international trade. 
D)  Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings. 
E)  Recession phases of the business cycle, upturns, and downturns. 
A)  People's desire to maintain real wealth holdings, the interest rate, and international trade. 
B)  People's desire to increase the price level, the interest rate, and the economic growth effect. 
C)  The interest rate, the economic growth effect, and international trade. 
D)  Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings. 
E)  Recession phases of the business cycle, upturns, and downturns.

Question 7

The aggregate demand curve slopes downward because of the real balances,interest-rate,and net exports effects.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

According to classical macroeconomic theory,if real GDP is below the full-employment level,then an increase in aggregate demand will result in which of the following changes in equilibrium?

Accepted Answer

A)  Real GDP will rise, but the price level will remain constant. 
B)  Real GDP and the price level will both rise. 
C)  Real GDP will remain unchanged but the price level will rise. 
D)  None of the above. 
A)  Real GDP will rise, but the price level will remain constant. 
B)  Real GDP and the price level will both rise. 
C)  Real GDP will remain unchanged but the price level will rise. 
D)  None of the above.

Question 11

Excessive government spending can cause demand-pull inflation.

Accepted Answer

A) True 
 B)False

Question 12

The aggregate supply curve will be vertical when:

Accepted Answer

A)  output can be increased without an increase in the price level. 
B)  the economy is operating at full-employment capacity. 
C)  output and price level rise together. 
D)  the aggregate demand curve is shifting to the left. 
E)  aggregate demand is absent. 
A)  output can be increased without an increase in the price level. 
B)  the economy is operating at full-employment capacity. 
C)  output and price level rise together. 
D)  the aggregate demand curve is shifting to the left. 
E)  aggregate demand is absent.

Question 13

Exhibit 14-8 Aggregate demand and supply
  
-In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₄,real GDP will:

Accepted Answer

A)  rise from $7.0 to $8.0, and the price level will rise from 120 to 140. 
B)  rise from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C)  rise from $7.0 to $8.0, and the price level will rise from 100 to 140. 
D)  not change, and the price level will rise from 120 to 140. 
E)  rise from $4.0 to $8.0, and the price level will rise from 120 to 140. 
A)  rise from $7.0 to $8.0, and the price level will rise from 120 to 140. 
B)  rise from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C)  rise from $7.0 to $8.0, and the price level will rise from 100 to 140. 
D)  not change, and the price level will rise from 120 to 140. 
E)  rise from $4.0 to $8.0, and the price level will rise from 120 to 140.

Question 14

Suppose the price level falls.The result is that the:

Accepted Answer

A)  aggregate supply curve would shift to the right. 
B)  aggregate supply curve would shift to the left. 
C)  general price level would rise causing a movement up the aggregate demand curve. 
D)  aggregate demand curve would slope downward because of the real balances effect. 
A)  aggregate supply curve would shift to the right. 
B)  aggregate supply curve would shift to the left. 
C)  general price level would rise causing a movement up the aggregate demand curve. 
D)  aggregate demand curve would slope downward because of the real balances effect.

Question 15

Exhibit 14-6 Aggregate supply curve
  
-In Exhibit 14-6,where the GDP = $1,200 billion,

Accepted Answer

A)  everyone willing to work at the current wage is employed. 
B)  the economy has reached full employment. 
C)  GDP can increase to $1,100 billion without triggering an increase in the price level. 
D)  no further increases in the price level can generate more real GDP. 
E)  further increases in the price level must generate lower levels of employment. 
A)  everyone willing to work at the current wage is employed. 
B)  the economy has reached full employment. 
C)  GDP can increase to $1,100 billion without triggering an increase in the price level. 
D)  no further increases in the price level can generate more real GDP. 
E)  further increases in the price level must generate lower levels of employment.

Question 16

A decrease in aggregate supply can result in:

Accepted Answer

A)  unemployment. 
B)  demand-pull inflation. 
C)  prosperity. 
D)  cost-push inflation. 
E)  a recession. 
A)  unemployment. 
B)  demand-pull inflation. 
C)  prosperity. 
D)  cost-push inflation. 
E)  a recession.

Question 17

When the price level falls,the total quantities of goods and services demanded:

Accepted Answer

A)  decreases. 
B)  stays the same. 
C)  increases. 
D)  increases and then decreases. 
E)  decreases and then increases. 
A)  decreases. 
B)  stays the same. 
C)  increases. 
D)  increases and then decreases. 
E)  decreases and then increases.

Question 18

Exhibit 14-4 Aggregate supply and demand curves
  
-In Exhibit 14-4 which of the following is not consistent with a shift in the aggregate demand curve from AD₁ to AD₂?

Accepted Answer

A)  A decrease in consumer spending. 
B)  An increase in investment. 
C)  An increase in government spending. 
D)  An increase in net exports. 
A)  A decrease in consumer spending. 
B)  An increase in investment. 
C)  An increase in government spending. 
D)  An increase in net exports.

Question 19

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A)  An increase in exports. 
B)  An increase in investment. 
C)  An increase in government spending. 
D)  A decrease in government spending. 
A)  An increase in exports. 
B)  An increase in investment. 
C)  An increase in government spending. 
D)  A decrease in government spending.

Question 20

Exhibit 14-4 Aggregate supply and demand curves
  
-As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-4,the economy experiences:

Accepted Answer

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

Exam 14: Aggregate Demand and Supply

The interest-rate effect is the impact on real GDP caused by the inverse relationship between the price level and the interest rate.

Which of the following is not a component of the aggregate demand curve?

Which of the following will most likely cause an increase in the aggregate supply curve?

The aggregate supply curve relating the price level to real GDP has three distinguishing segments.Which one of the following indicates the segments?

An increase in the per unit costs of production within an economy will cause the aggregate supply curve to shift to the right.

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

The aggregate demand curve slopes downward because of the real balances,interest-rate,and net exports effects.

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

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

According to classical macroeconomic theory,if real GDP is below the full-employment level,then an increase in aggregate demand will result in which of the following changes in equilibrium?

Excessive government spending can cause demand-pull inflation.

The aggregate supply curve will be vertical when:

Exhibit 14-8 Aggregate demand and supply -In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₄,real GDP will:

Suppose the price level falls.The result is that the:

Exhibit 14-6 Aggregate supply curve -In Exhibit 14-6,where the GDP = $1,200 billion,

A decrease in aggregate supply can result in:

When the price level falls,the total quantities of goods and services demanded:

Exhibit 14-4 Aggregate supply and demand curves -In Exhibit 14-4 which of the following is not consistent with a shift in the aggregate demand curve from AD₁ to AD₂?

Which of the following would shift the aggregate demand curve to the left?

Exhibit 14-4 Aggregate supply and demand curves -As the aggregate demand curve shifts from AD₁ to AD₂ in Exhibit 14-4,the economy experiences:

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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