Question 1

Why might the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?

Accepted Answer

A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices. 
A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices. A

Question 2

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

Accepted Answer

A) True 
 B)False  True

Question 3

At each of the three points in the following graph,indicate whether planned aggregate expenditure is greater than,equal to,or less than GDP.

Accepted Answer

At point J,planned aggregate expenditure is greater than GDP.
At point K,planned aggregate expenditure is equal to GDP.
At point L,planned aggregate expenditure is less than GDP.

Question 4

An increase in the price level will

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  move the economy up along a stationary aggregate demand curve. 
D)  move the economy down along a stationary aggregate demand curve. 
A)  shift the aggregate demand curve to the left. 
B)  shift the aggregate demand curve to the right. 
C)  move the economy up along a stationary aggregate demand curve. 
D)  move the economy down along a stationary aggregate demand curve.

Question 5

________ of unemployment during ________ make it easier for workers to ________ wages.

Accepted Answer

A)  High levels; a recession; accept lower 
B)  Low levels; an expansion; accept lower 
C)  Low levels; a recession; negotiate higher 
D)  High levels; an expansion; negotiate higher 
A)  High levels; a recession; accept lower 
B)  Low levels; an expansion; accept lower 
C)  Low levels; a recession; negotiate higher 
D)  High levels; an expansion; negotiate higher

Question 6

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A)  raises; recession; lowers; expansion 
B)  raises; expansion; raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion 
A)  raises; recession; lowers; expansion 
B)  raises; expansion; raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion

Question 7

The dynamic aggregate demand and aggregate supply model assumes that potential GDP is constant across time.

Accepted Answer

A) True 
 B)False

Question 8

Figure 14.4  
-If the economy is currently at point K in Figure 14.4,which of the following could cause it to move to point N?

Accepted Answer

A)  The price level in Australia rises relative to the price level in other countries. 
B)  The government introduces investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines. 
A)  The price level in Australia rises relative to the price level in other countries. 
B)  The government introduces investment tax incentives. 
C)  The interest rate rises. 
D)  Household wealth declines.

Question 9

The distinction between the short-run and long-run aggregate supply curve is necessary because in the long run

Accepted Answer

A)  technology is fixed, but in the short run it changes. 
B)  changes in the price level do not affect the level of real GDP but do in the short run. 
C)  the aggregate supply curve is horizontal, but in the short run it is upward sloping. 
D)  the price level is constant, but in the short run it fluctuates. 
A)  technology is fixed, but in the short run it changes. 
B)  changes in the price level do not affect the level of real GDP but do in the short run. 
C)  the aggregate supply curve is horizontal, but in the short run it is upward sloping. 
D)  the price level is constant, but in the short run it fluctuates.

Question 10

Along a short-run aggregate supply curve,a decrease in the price level causes

Accepted Answer

A)  firms to increase their production levels, as the lower prices will increase consumer demand. 
B)  no change in output to occur as, at the macroeconomic level, the price level does not affect supply. 
C)  firms to reduce their production levels. 
D)  production levels to rise as the price of inputs become cheaper. 
A)  firms to increase their production levels, as the lower prices will increase consumer demand. 
B)  no change in output to occur as, at the macroeconomic level, the price level does not affect supply. 
C)  firms to reduce their production levels. 
D)  production levels to rise as the price of inputs become cheaper.

Question 11

On the 45° line diagram,the 45° line shows points such that

Accepted Answer

A)  real income equals real GDP. 
B)  real aggregate expenditure equals C + I. 
C)  real aggregate expenditure equals real GDP. 
D)  real aggregate output equals the quantity produced. 
A)  real income equals real GDP. 
B)  real aggregate expenditure equals C + I. 
C)  real aggregate expenditure equals real GDP. 
D)  real aggregate output equals the quantity produced.

Question 12

During the contraction phase of the business cycle

Accepted Answer

A)  production increases. 
B)  employment increases. 
C)  income increases. 
D)  unemployment increases. 
A)  production increases. 
B)  employment increases. 
C)  income increases. 
D)  unemployment increases.

Question 13

During economic contractions,the Reserve Bank of Australia often reduces interest rates.Explain how this policy affects the aggregate demand curve.

Accepted Answer

Reducing the interest rate lowers the co

Question 14

Use the dynamic model of aggregate demand and aggregate supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Accepted Answer

If the aggregate demand curve shifts to

Question 15

Figure 14.2  
-In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what is the growth rate in potential GDP between those two years?

Accepted Answer

A)  9.1 per cent 
B)  8 per cent 
C)  12 per cent 
D)  10 per cent 
A)  9.1 per cent 
B)  8 per cent 
C)  12 per cent 
D)  10 per cent

Question 16

The short-run aggregate supply curve has a ________ slope because as prices of ________ rise,prices of ________ rise more slowly.

Accepted Answer

A)  positive; final goods and services; inputs 
B)  vertical; final goods and services; inputs 
C)  positive; inputs; final goods and services 
D)  vertical; inputs; final goods and services 
A)  positive; final goods and services; inputs 
B)  vertical; final goods and services; inputs 
C)  positive; inputs; final goods and services 
D)  vertical; inputs; final goods and services

Question 17

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP then

Accepted Answer

A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in equilibrium at less than full employment. 
D)  the economy is at full employment. 
A)  actual inventory investment will be less than planned inventory investment. 
B)  actual inventory investment will be greater than planned inventory investment. 
C)  the economy is in equilibrium at less than full employment. 
D)  the economy is at full employment.

Question 18

The widespread recessions of 2007-2009 caused a reduction in German exports and reduction in net exports for Germany,shifting the German aggregate demand curve.Which of the following factors would also cause a reduction in Germany's net exports and shift Germany's aggregate demand curve?

Accepted Answer

A)  Real GDP in Germany increasing faster than real GDP in other countries. 
B)  A decrease in the exchange rate of the Euro relative to other currencies. 
C)  A decrease in the price level in Germany. 
D)  An increase in the price level in Germany. 
A)  Real GDP in Germany increasing faster than real GDP in other countries. 
B)  A decrease in the exchange rate of the Euro relative to other currencies. 
C)  A decrease in the price level in Germany. 
D)  An increase in the price level in Germany.

Question 19

Because of the slope of the aggregate demand curve,we can say that

Accepted Answer

A)  a decrease in the price level leads to a lower level of aggregate spending. 
B)  a decrease in the price level leads to a higher level of aggregate supply. 
C)  a decrease in the price level leads to a higher level of aggregate spending. 
D)  an increase in the price level leads to a higher level of aggregate spending. 
A)  a decrease in the price level leads to a lower level of aggregate spending. 
B)  a decrease in the price level leads to a higher level of aggregate supply. 
C)  a decrease in the price level leads to a higher level of aggregate spending. 
D)  an increase in the price level leads to a higher level of aggregate spending.

Question 20

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A)  Potential GDP increases continuously. 
B)  Aggregate demand shifts to the right during most periods. 
C)  Aggregate supply shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential GDP decrease continuously. 
A)  Potential GDP increases continuously. 
B)  Aggregate demand shifts to the right during most periods. 
C)  Aggregate supply shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential GDP decrease continuously.

Why might the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

At each of the three points in the following graph,indicate whether planned aggregate expenditure is greater than,equal to,or less than GDP.

An increase in the price level will

of unemployment during make it easier for workers to wages.

The automatic mechanism the price level in the case of and the price level in the case of .

The dynamic aggregate demand and aggregate supply model assumes that potential GDP is constant across time.

Figure 14.4 -If the economy is currently at point K in Figure 14.4,which of the following could cause it to move to point N?

The distinction between the short-run and long-run aggregate supply curve is necessary because in the long run

Along a short-run aggregate supply curve,a decrease in the price level causes

On the 45° line diagram,the 45° line shows points such that

During the contraction phase of the business cycle

During economic contractions,the Reserve Bank of Australia often reduces interest rates.Explain how this policy affects the aggregate demand curve.

Use the dynamic model of aggregate demand and aggregate supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Figure 14.2 -In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what is the growth rate in potential GDP between those two years?

The short-run aggregate supply curve has a slope because as prices of rise,prices of rise more slowly.

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP then

The widespread recessions of 2007-2009 caused a reduction in German exports and reduction in net exports for Germany,shifting the German aggregate demand curve.Which of the following factors would also cause a reduction in Germany's net exports and shift Germany's aggregate demand curve?

Because of the slope of the aggregate demand curve,we can say that

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 14: Economic Growth, the Financial System and Business Cycles

Why might the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

At each of the three points in the following graph,indicate whether planned aggregate expenditure is greater than,equal to,or less than GDP.

An increase in the price level will

________ of unemployment during ________ make it easier for workers to ________ wages.

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

The dynamic aggregate demand and aggregate supply model assumes that potential GDP is constant across time.

Figure 14.4 -If the economy is currently at point K in Figure 14.4,which of the following could cause it to move to point N?

The distinction between the short-run and long-run aggregate supply curve is necessary because in the long run

Along a short-run aggregate supply curve,a decrease in the price level causes

On the 45° line diagram,the 45° line shows points such that

During the contraction phase of the business cycle

During economic contractions,the Reserve Bank of Australia often reduces interest rates.Explain how this policy affects the aggregate demand curve.

Use the dynamic model of aggregate demand and aggregate supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Figure 14.2 -In Figure 14.2,given the economy is at point A in year 1 and point B in year 2,what is the growth rate in potential GDP between those two years?

The short-run aggregate supply curve has a ________ slope because as prices of ________ rise,prices of ________ rise more slowly.

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP then

The widespread recessions of 2007-2009 caused a reduction in German exports and reduction in net exports for Germany,shifting the German aggregate demand curve.Which of the following factors would also cause a reduction in Germany's net exports and shift Germany's aggregate demand curve?

Because of the slope of the aggregate demand curve,we can say that

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

of unemployment during make it easier for workers to wages.

The automatic mechanism the price level in the case of and the price level in the case of .

The short-run aggregate supply curve has a slope because as prices of rise,prices of rise more slowly.