Question 1

Which of the following is an example of an adverse supply shock?

Accepted Answer

A)  a nationwide drought lasting for many months 
B)  an outbreak of war among several of the Middle Eastern oil-producing countries 
C)  an influenza virus that affects 50 percent of the labor force over a two month period 
D)  a,b,and c 
E)  a and c 
A)  a nationwide drought lasting for many months 
B)  an outbreak of war among several of the Middle Eastern oil-producing countries 
C)  an influenza virus that affects 50 percent of the labor force over a two month period 
D)  a,b,and c 
E)  a and c

Question 2

As interest rates drop,households tend to borrow more and businesses tend to borrow less.

Accepted Answer

A) True 
 B)False

Question 3

If total expenditures fall at a given price level,then the

Accepted Answer

A)  quantity demanded of Real GDP rises. 
B)  quantity demanded of Real GDP falls. 
C)  AD curves shifts to the right. 
D)  AD curve shifts to the left. 
E)  none of the above 
A)  quantity demanded of Real GDP rises. 
B)  quantity demanded of Real GDP falls. 
C)  AD curves shifts to the right. 
D)  AD curve shifts to the left. 
E)  none of the above

Question 4

The short-run aggregate supply curve is ________ and the long-run aggregate supply curve is _________.

Accepted Answer

A)  upward sloping; horizontal 
B)  vertical; upward sloping 
C)  vertical; horizontal 
D)  upward sloping; vertical 
E)  none of the above 
A)  upward sloping; horizontal 
B)  vertical; upward sloping 
C)  vertical; horizontal 
D)  upward sloping; vertical 
E)  none of the above

Question 5

The change in the purchasing power of dollar-denominated assets (such as cash holdings)is the

Accepted Answer

A)  money effect. 
B)  interest rate effect. 
C)  asset effect. 
D)  real balance effect. 
E)  none of the above 
A)  money effect. 
B)  interest rate effect. 
C)  asset effect. 
D)  real balance effect. 
E)  none of the above

Question 6

The real balance effect works through a change in the value of

Accepted Answer

A)  monetary assets in response to changes in the unemployment rate. 
B)  nonmonetary assets in response to changes in the unemployment rate. 
C)  monetary assets in response to changes in the price level. 
D)  nonmonetary assets in response to changes in the price level. 
A)  monetary assets in response to changes in the unemployment rate. 
B)  nonmonetary assets in response to changes in the unemployment rate. 
C)  monetary assets in response to changes in the price level. 
D)  nonmonetary assets in response to changes in the price level.

Question 7

A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.

Accepted Answer

A)  raise; raise 
B)  raise; lower 
C)  lower; raise 
D)  lower; lower 
A)  raise; raise 
B)  raise; lower 
C)  lower; raise 
D)  lower; lower

Question 8

As income taxes rise,disposable income __________,causing __________ the AD curve.

Accepted Answer

A)  increases; movement down along 
B)  increases; a rightward shift of 
C)  decreases; movement up along 
D)  decreases; a leftward shift of 
A)  increases; movement down along 
B)  increases; a rightward shift of 
C)  decreases; movement up along 
D)  decreases; a leftward shift of

Question 9

Assume that the economy is currently in short-run equilibrium,then the dollar appreciates in the foreign exchange market.Describe the correct sequence of events that happen as the economy adjusts to a new short-run equilibrium (be sure to state what the impact would be on the price level and Real GDP).

Accepted Answer

As the dollar appreciates,foreign goods

Question 10

Which of the following statements is false?

Accepted Answer

A)  The exchange rate is the price of one (country's)currency in terms of another (country's)currency. 
B)  A currency has appreciated in value if more of a foreign currency is needed to buy it. 
C)  A change in the money supply can change aggregate demand. 
D)  A change in business taxes can change investment,which can change aggregate demand. 
E)  none of the above 
A)  The exchange rate is the price of one (country's)currency in terms of another (country's)currency. 
B)  A currency has appreciated in value if more of a foreign currency is needed to buy it. 
C)  A change in the money supply can change aggregate demand. 
D)  A change in business taxes can change investment,which can change aggregate demand. 
E)  none of the above

Question 11

The short-run aggregate supply curve is

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal. 
A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal.

Question 12

The level of Real GDP that the economy produces in long-run equilibrium is Natural Real GDP.

Accepted Answer

A) True 
 B)False

Question 13

In a two-country world,a decrease in foreign input prices,ceteris paribus,

Accepted Answer

A)  shifts the SRAS curve leftward,causing the price level to increase. 
B)  shifts the SRAS curve leftward,causing the price level to decrease. 
C)  shifts the SRAS curve rightward,causing the price level to increase. 
D)  shifts the SRAS curve rightward,causing the price level to decrease. 
E)  does not affect the SRAS curve or the price level. 
A)  shifts the SRAS curve leftward,causing the price level to increase. 
B)  shifts the SRAS curve leftward,causing the price level to decrease. 
C)  shifts the SRAS curve rightward,causing the price level to increase. 
D)  shifts the SRAS curve rightward,causing the price level to decrease. 
E)  does not affect the SRAS curve or the price level.

Question 14

If wage rates fall at the same time that labor productivity increases,what is the effect on short-run aggregate supply (SRAS)?

Accepted Answer

A)  SRAS falls. 
B)  SRAS remains constant. 
C)  SRAS rises. 
D)  SRAS may rise,fall,or remain constant. 
A)  SRAS falls. 
B)  SRAS remains constant. 
C)  SRAS rises. 
D)  SRAS may rise,fall,or remain constant.

Question 15

-Refer to Exhibit 8-1.Assume that the economy is originally in equilibrium at point B.If businesses become pessimistic about future sales,at which point is the economy most likely to end up in the short run?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 16

-Refer to Exhibit 8-1.Assume the economy is originally in equilibrium at point A.If the price of oil rises,at which point is the economy most likely to end up in the short run?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 17

A change in the money supply can affect one or more of the components of spending and therefore shift the short-run aggregate supply (SRAS)curve.

Accepted Answer

A) True 
 B)False

Question 18

-Refer to Exhibit 8-3.A shift in aggregate demand from AD1 to AD2 could have been the result of

Accepted Answer

A)  a decrease in the price level. 
B)  an increase in the price level. 
C)  an increase in foreign real national income. 
D)  a decrease in foreign real national income. 
A)  a decrease in the price level. 
B)  an increase in the price level. 
C)  an increase in foreign real national income. 
D)  a decrease in foreign real national income.

Question 19

Which of the following is not a factor that can shift the short-run aggregate supply curve?

Accepted Answer

A)  changes in the wage rate 
B)  changes in the price of non-labor inputs such as oil 
C)  changes in labor productivity 
D)  a severe drought which extensively damages grain crops 
E)  none of the above 
A)  changes in the wage rate 
B)  changes in the price of non-labor inputs such as oil 
C)  changes in labor productivity 
D)  a severe drought which extensively damages grain crops 
E)  none of the above

Question 20

Suppose the following: (1)the wage rate rises,(2)the interest rate rises,(3)any change in AD is greater than any change in SRAS.Based on this information,in the short run Real GDP will __________ and the price level will __________.

Accepted Answer

A)  rise; rise 
B)  fall; rise 
C)  fall; fall 
D)  rise; fall 
A)  rise; rise 
B)  fall; rise 
C)  fall; fall 
D)  rise; fall

Exam 8: Production and Costs

Which of the following is an example of an adverse supply shock?

As interest rates drop,households tend to borrow more and businesses tend to borrow less.

If total expenditures fall at a given price level,then the

The short-run aggregate supply curve is ________ and the long-run aggregate supply curve is _________.

The change in the purchasing power of dollar-denominated assets (such as cash holdings)is the

The real balance effect works through a change in the value of

A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.

As income taxes rise,disposable income __________,causing __________ the AD curve.

Which of the following statements is false?

The short-run aggregate supply curve is

The level of Real GDP that the economy produces in long-run equilibrium is Natural Real GDP.

In a two-country world,a decrease in foreign input prices,ceteris paribus,

If wage rates fall at the same time that labor productivity increases,what is the effect on short-run aggregate supply (SRAS)?

-Refer to Exhibit 8-1.Assume that the economy is originally in equilibrium at point B.If businesses become pessimistic about future sales,at which point is the economy most likely to end up in the short run?

-Refer to Exhibit 8-1.Assume the economy is originally in equilibrium at point A.If the price of oil rises,at which point is the economy most likely to end up in the short run?

A change in the money supply can affect one or more of the components of spending and therefore shift the short-run aggregate supply (SRAS)curve.

-Refer to Exhibit 8-3.A shift in aggregate demand from AD1 to AD2 could have been the result of

Which of the following is not a factor that can shift the short-run aggregate supply curve?

Suppose the following: (1)the wage rate rises,(2)the interest rate rises,(3)any change in AD is greater than any change in SRAS.Based on this information,in the short run Real GDP will __________ and the price level will __________.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Perfect Competition

Monopoly

Monopolistic Competition, oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

The short-run aggregate supply curve is and the long-run aggregate supply curve is _.

A decrease in the money supply may total expenditures and thus aggregate demand.

As income taxes rise,disposable income ,causing the AD curve.

-Refer to Exhibit 8-3.A shift in aggregate demand from AD₁ to AD₂ could have been the result of

Suppose the following: (1)the wage rate rises,(2)the interest rate rises,(3)any change in AD is greater than any change in SRAS.Based on this information,in the short run Real GDP will and the price level will .