Question 1

The interest rate effect that helps explain the slope of the aggregate demand curve arises because

Accepted Answer

A)  interest rates and total planned real expenditures are unrelated. 
B)  an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures. 
C)  an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures. 
D)  a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures. 
A)  interest rates and total planned real expenditures are unrelated. 
B)  an increase in the price level lead to decreases in interest rates, which induces more borrowing and hence raises planned real expenditures. 
C)  an increase in the price level boosts interest rates, which discourages borrowing and hence reduces planned real expenditures. 
D)  a decrease in the price level boosts interest rates, which discourages borrowing and hence frees up income for more planned real expenditures.

Question 2

Economic growth is demonstrated by the LRAS as it

Accepted Answer

A)  shifts to the right. 
B)  shifts to the left. 
C)  becomes more horizontal. 
D)  becomes more vertical. 
A)  shifts to the right. 
B)  shifts to the left. 
C)  becomes more horizontal. 
D)  becomes more vertical.

Question 3

Which of the following statements is correct? I. When economists derive the aggregate demand curve, they are looking at the effect of the price level on one commodity only.
II) Any non-price-level change that increases total planned real spending on domestic goods shifts the AD curve to the right.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 4

When the price level increases, total planned real expenditures on goods and services falls. All of the following are responsible EXCEPT

Accepted Answer

A)  the substitution effect. 
B)  the real-balance effect. 
C)  the interest rate effect. 
D)  the open economy effect. 
A)  the substitution effect. 
B)  the real-balance effect. 
C)  the interest rate effect. 
D)  the open economy effect.

Question 5

Supply-side inflation could be caused by which of the following?

Accepted Answer

A)  An increase in aggregate demand 
B)  A decrease in aggregate demand 
C)  An increase in long-run aggregate supply 
D)  A decrease in long-run aggregate supply 
A)  An increase in aggregate demand 
B)  A decrease in aggregate demand 
C)  An increase in long-run aggregate supply 
D)  A decrease in long-run aggregate supply

Question 6

The long-run aggregate supply curve is

Accepted Answer

A)  U-shaped. 
B)  horizontal. 
C)  upward sloping. 
D)  vertical. 
A)  U-shaped. 
B)  horizontal. 
C)  upward sloping. 
D)  vertical.

Question 7

All of the following are components of aggregate demand EXCEPT

Accepted Answer

A)  consumption spending. 
B)  government purchases. 
C)  the level of technology. 
D)  net foreign spending on domestic production. 
A)  consumption spending. 
B)  government purchases. 
C)  the level of technology. 
D)  net foreign spending on domestic production.

Question 8

Long-run aggregate supply curve corresponds to

Accepted Answer

A)  real GDP when the economy is above full employment. 
B)  real GDP when the economy is at full employment. 
C)  the economy outside its production possibilities curve. 
D)  the economy inside its production possibilities curve. 
A)  real GDP when the economy is above full employment. 
B)  real GDP when the economy is at full employment. 
C)  the economy outside its production possibilities curve. 
D)  the economy inside its production possibilities curve.

Question 9

-Refer to the above figure. Suppose the economy's initial equilibrium is represented by the intersection of LRAS1 and AD1. Suppose there is a persistent reduction in labor force participation, which reduces total planned production at any given price level. The resulting change in the economy's long-run equilibrium position would be represented by a

Accepted Answer

A)  movement from A to C. 
B)  movement from A to B. 
C)  movement from B to C. 
D)  movement from C to A. 
A)  movement from A to C. 
B)  movement from A to B. 
C)  movement from B to C. 
D)  movement from C to A.

Question 10

If the current price level is lower than the equilibrium price level, then it must be true that total planned

Accepted Answer

A)  government spending is less than total planned tax revenues. 
B)  government spending exceeds total planned tax revenues. 
C)  real expenditures are less than total planned production. 
D)  real expenditures exceed total planned production. 
A)  government spending is less than total planned tax revenues. 
B)  government spending exceeds total planned tax revenues. 
C)  real expenditures are less than total planned production. 
D)  real expenditures exceed total planned production.

Question 11

The aggregate demand curve shows the relationship between planned purchases of

Accepted Answer

A)  all final goods and services and interest rates. 
B)  all final goods and services and the price level. 
C)  all final goods and services and nominal GDP. 
D)  all final goods and services and total planned production. 
A)  all final goods and services and interest rates. 
B)  all final goods and services and the price level. 
C)  all final goods and services and nominal GDP. 
D)  all final goods and services and total planned production.

Question 12

The long-run aggregate supply curve is determined by all of the following EXCEPT

Accepted Answer

A)  aggregate demand. 
B)  endowments. 
C)  technology. 
D)  the amount of resources that exist in the economy. 
A)  aggregate demand. 
B)  endowments. 
C)  technology. 
D)  the amount of resources that exist in the economy.

Question 13

What causes the aggregate demand curve to shift?

Accepted Answer

Anything that causes total planned real

Question 14

A higher domestic price level should

Accepted Answer

A)  decrease net exports. 
B)  increase desired investment. 
C)  increase real wealth and consumption. 
D)  none of these. 
A)  decrease net exports. 
B)  increase desired investment. 
C)  increase real wealth and consumption. 
D)  none of these.

Question 15

The aggregate demand curve shows the

Accepted Answer

A)  total amount of planned expenditures on goods and services at each possible price level. 
B)  total amount of nominal goods that the participants in the economy want to purchase. 
C)  total amount of real goods that foreigners want to purchase. 
D)  amount of goods producers will produce as production costs fall. 
A)  total amount of planned expenditures on goods and services at each possible price level. 
B)  total amount of nominal goods that the participants in the economy want to purchase. 
C)  total amount of real goods that foreigners want to purchase. 
D)  amount of goods producers will produce as production costs fall.

Question 16

Which of the following is the most likely explanation for inflation in the United States?

Accepted Answer

A)  increases in aggregate supply 
B)  decreases in aggregate supply 
C)  increases in aggregate demand 
D)  decreases in aggregate demand 
A)  increases in aggregate supply 
B)  decreases in aggregate supply 
C)  increases in aggregate demand 
D)  decreases in aggregate demand

Question 17

According to the real-balance effect, an increase in the price level will

Accepted Answer

A)  leave total planned real expenditures unchanged since the price level of all goods has increased. 
B)  decrease total planned real expenditures because of an increase in interest rates. 
C)  lead to a corresponding increase in total planned real expenditures since businesses are now earning higher profits. 
D)  decrease total planned real expenditures as a result of a decrease in the real value of money balances. 
A)  leave total planned real expenditures unchanged since the price level of all goods has increased. 
B)  decrease total planned real expenditures because of an increase in interest rates. 
C)  lead to a corresponding increase in total planned real expenditures since businesses are now earning higher profits. 
D)  decrease total planned real expenditures as a result of a decrease in the real value of money balances.

Question 18

-The above figure shows a

Accepted Answer

A)  short-run aggregate demand curve. 
B)  short-run aggregate supply curve. 
C)  long-run aggregate demand curve. 
D)  long-run aggregate supply curve. 
A)  short-run aggregate demand curve. 
B)  short-run aggregate supply curve. 
C)  long-run aggregate demand curve. 
D)  long-run aggregate supply curve.

Question 19

Which of the following would cause the long-run aggregate supply curve to shift to the right?

Accepted Answer

A)  An increase in wages 
B)  An increase in demand 
C)  An increase in productivity 
D)  An increase in taxes on profits 
A)  An increase in wages 
B)  An increase in demand 
C)  An increase in productivity 
D)  An increase in taxes on profits

Question 20

In the long run, an increase in government spending, other things equal, generates

Accepted Answer

A)  a higher real GDP in the long run. 
B)  a lower real GDP in the short run. 
C)  a higher price level. 
D)  both a higher real GDP and a lower price level. 
A)  a higher real GDP in the long run. 
B)  a lower real GDP in the short run. 
C)  a higher price level. 
D)  both a higher real GDP and a lower price level.

Exam 10: Real GDP and the Price Level in the Long Run

The interest rate effect that helps explain the slope of the aggregate demand curve arises because

Economic growth is demonstrated by the LRAS as it

Which of the following statements is correct? I. When economists derive the aggregate demand curve, they are looking at the effect of the price level on one commodity only. II) Any non-price-level change that increases total planned real spending on domestic goods shifts the AD curve to the right.

When the price level increases, total planned real expenditures on goods and services falls. All of the following are responsible EXCEPT

Supply-side inflation could be caused by which of the following?

The long-run aggregate supply curve is

All of the following are components of aggregate demand EXCEPT

Long-run aggregate supply curve corresponds to

If the current price level is lower than the equilibrium price level, then it must be true that total planned

The aggregate demand curve shows the relationship between planned purchases of

The long-run aggregate supply curve is determined by all of the following EXCEPT

What causes the aggregate demand curve to shift?

A higher domestic price level should

The aggregate demand curve shows the

Which of the following is the most likely explanation for inflation in the United States?

According to the real-balance effect, an increase in the price level will

-The above figure shows a

Which of the following would cause the long-run aggregate supply curve to shift to the right?

In the long run, an increase in government spending, other things equal, generates

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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