Question 1

When the U.S. price level falls, the open economy effect indicates that

Accepted Answer

A)  U.S. imports will rise. 
B)  U.S. residents will move away from domestic goods and buy more foreign goods. 
C)  U.S. exports will increase. 
D)  foreigners will buy fewer U.S. goods. 
A)  U.S. imports will rise. 
B)  U.S. residents will move away from domestic goods and buy more foreign goods. 
C)  U.S. exports will increase. 
D)  foreigners will buy fewer U.S. goods.

Question 2

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 3

The real-balance effect shows that

Accepted Answer

A)  aggregate demand is upward sloping. 
B)  a higher price level leads to higher interest rates. 
C)  a lower price level will increase the purchasing power of currency and increase personal consumption. 
D)  consumption and the price level are positively correlated. 
A)  aggregate demand is upward sloping. 
B)  a higher price level leads to higher interest rates. 
C)  a lower price level will increase the purchasing power of currency and increase personal consumption. 
D)  consumption and the price level are positively correlated.

Question 4

According to the interest rate effect, a decrease in the price level will

Accepted Answer

A)  decrease the real value of money balances, which causes total planned real expenditures to increase. 
B)  cause interest rates to fall, which generates an increase in borrowing, so that total planned real expenditures increase. 
C)  lead to a decrease in net exports, which causes total planned real expenditures to decrease. 
D)  increase the real value of money balances, which causes interest rates to increase, thereby reducing total planned expenditures. 
A)  decrease the real value of money balances, which causes total planned real expenditures to increase. 
B)  cause interest rates to fall, which generates an increase in borrowing, so that total planned real expenditures increase. 
C)  lead to a decrease in net exports, which causes total planned real expenditures to decrease. 
D)  increase the real value of money balances, which causes interest rates to increase, thereby reducing total planned expenditures.

Question 5

Which one of the following is NOT a component of aggregate demand?

Accepted Answer

A)  merchandise inventories 
B)  consumption spending 
C)  investment expenditures 
D)  government purchases 
A)  merchandise inventories 
B)  consumption spending 
C)  investment expenditures 
D)  government purchases

Question 6

Long-run aggregate supply is

Accepted Answer

A)  the sum of planned expenditures by consumers and firms. 
B)  the level of output that occurs when the economy is operating on the production possibilities curve. 
C)  downward sloping. 
D)  upward sloping. 
A)  the sum of planned expenditures by consumers and firms. 
B)  the level of output that occurs when the economy is operating on the production possibilities curve. 
C)  downward sloping. 
D)  upward sloping.

Question 7

The long-run aggregate supply curve shifts right at the same time as

Accepted Answer

A)  wages increase. 
B)  the production possibilities curve shifts outward. 
C)  the production possibilities curve shifts inward. 
D)  the inflation rate increases. 
A)  wages increase. 
B)  the production possibilities curve shifts outward. 
C)  the production possibilities curve shifts inward. 
D)  the inflation rate increases.

Question 8

A weakening in consumer confidence causes a

Accepted Answer

A)  shift of the aggregate demand curve to the right. 
B)  shift of the aggregate demand curve to the left. 
C)  movement up along the aggregate demand curve. 
D)  movement down along the aggregate demand curve. 
A)  shift of the aggregate demand curve to the right. 
B)  shift of the aggregate demand curve to the left. 
C)  movement up along the aggregate demand curve. 
D)  movement down along the aggregate demand curve.

Question 9

An individual holds $10,000 in a non-interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expect

Accepted Answer

A)  the individual's real wealth to decrease and consumption to decline. 
B)  the individual's stock of real wealth to decrease but real national income to increase. 
C)  no change in the individual's real wealth but a decline in real national product. 
D)  the individual's wealth to increase. 
A)  the individual's real wealth to decrease and consumption to decline. 
B)  the individual's stock of real wealth to decrease but real national income to increase. 
C)  no change in the individual's real wealth but a decline in real national product. 
D)  the individual's wealth to increase.

Question 10

The long-run aggregate supply curve

Accepted Answer

A)  shows that at higher prices, potential real Gross Domestic Product (GDP) increases. 
B)  slopes up and to the right. 
C)  shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP). 
D)  is very sensitive to changes in the price level. 
A)  shows that at higher prices, potential real Gross Domestic Product (GDP) increases. 
B)  slopes up and to the right. 
C)  shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP). 
D)  is very sensitive to changes in the price level.

Question 11

Higher interest rates tend to

Accepted Answer

A)  reduce the total planned spending on goods and services. 
B)  lower the costs of building new plants and equipment. 
C)  increase the quantity demanded of goods and services. 
D)  make it less costly for people to buy houses and cars. 
A)  reduce the total planned spending on goods and services. 
B)  lower the costs of building new plants and equipment. 
C)  increase the quantity demanded of goods and services. 
D)  make it less costly for people to buy houses and cars.

Question 12

Why is the long-run aggregate supply curve a vertical line?

Accepted Answer

A)  At that level of real GDP, the unemployment rate is 0 percent. 
B)  At that level of real GDP, the inflation rate is 0 percent. 
C)  At that level of real GDP, the production costs are at their lowest level. 
D)  At that level of real GDP, production costs have fully adjusted to price changes. 
A)  At that level of real GDP, the unemployment rate is 0 percent. 
B)  At that level of real GDP, the inflation rate is 0 percent. 
C)  At that level of real GDP, the production costs are at their lowest level. 
D)  At that level of real GDP, production costs have fully adjusted to price changes.

Question 13

What would likely happen to the long-run aggregate supply curve if the U.S. federal government decreases marginal tax rates on wages?

Accepted Answer

A)  The LRAS curve would shift rightward. 
B)  The LRAS curve would shift leftward. 
C)  The LRAS curve would remain stable while the AD curve would shift leftward. 
D)  The LRAS curve would remain stable while the AD curve would shift rightward. 
A)  The LRAS curve would shift rightward. 
B)  The LRAS curve would shift leftward. 
C)  The LRAS curve would remain stable while the AD curve would shift leftward. 
D)  The LRAS curve would remain stable while the AD curve would shift rightward.

Question 14

The horizontal axis for an aggregate demand curve measures

Accepted Answer

A)  quantity demanded of the representative good. 
B)  real Gross Domestic Product (GDP). 
C)  output of all goods and services measured as a quantity index. 
D)  disposable personal income. 
A)  quantity demanded of the representative good. 
B)  real Gross Domestic Product (GDP). 
C)  output of all goods and services measured as a quantity index. 
D)  disposable personal income.

Question 15

One impact of a rise in the U.S. dollar's value is that

Accepted Answer

A)  imports become cheaper for the U.S. consumer. 
B)  exports will increase sharply. 
C)  U.S. goods will become cheaper overseas. 
D)  U.S. goods are cheaper domestically. 
A)  imports become cheaper for the U.S. consumer. 
B)  exports will increase sharply. 
C)  U.S. goods will become cheaper overseas. 
D)  U.S. goods are cheaper domestically.

Question 16

Which of the following is TRUE about how the aggregate demand curve differs from the individual's demand curve?

Accepted Answer

A)  The individual's demand curve shows the relationship between price and quantity demanded while the aggregate demand curve is not influenced by price. 
B)  For the individual's demand curve equilibrium is determined by the intersection of supply and demand while for the aggregate demand curve equilibrium is determined by the real balance effect. 
C)  The individual's demand curve is just for an individual while the aggregate demand curve looks at the entire circular flow of income. 
D)  The individual's demand curve will shift when there is a change in taxes while the aggregate demand curve will not. 
A)  The individual's demand curve shows the relationship between price and quantity demanded while the aggregate demand curve is not influenced by price. 
B)  For the individual's demand curve equilibrium is determined by the intersection of supply and demand while for the aggregate demand curve equilibrium is determined by the real balance effect. 
C)  The individual's demand curve is just for an individual while the aggregate demand curve looks at the entire circular flow of income. 
D)  The individual's demand curve will shift when there is a change in taxes while the aggregate demand curve will not.

Question 17

The wealth effect is another term for the

Accepted Answer

A)  substitution effect. 
B)  indirect effect. 
C)  real-balance effect. 
D)  interest rate effect. 
A)  substitution effect. 
B)  indirect effect. 
C)  real-balance effect. 
D)  interest rate effect.

Question 18

The various quantities of all final commodities demanded at various price levels, ceteris paribus, is the

Accepted Answer

A)  LRAS. 
B)  production possibilities curve. 
C)  aggregate demand curve. 
D)  aggregate supply curve. 
A)  LRAS. 
B)  production possibilities curve. 
C)  aggregate demand curve. 
D)  aggregate supply curve.

Question 19

Decreases in interest rates have made it less costly to finance purchases of new houses. What impact will this have on U.S. aggregate demand?

Accepted Answer

A)  None. A nation's aggregate demand is not affected by changes in interest rates. 
B)  U.S. aggregate demand will remain unchanged. 
C)  U.S. aggregate demand will decrease. 
D)  The U.S. aggregate demand curve will shift to the right. 
A)  None. A nation's aggregate demand is not affected by changes in interest rates. 
B)  U.S. aggregate demand will remain unchanged. 
C)  U.S. aggregate demand will decrease. 
D)  The U.S. aggregate demand curve will shift to the right.

Question 20

A persistently declining price level resulting from economic growth and unchanged aggregate demand is called

Accepted Answer

A)  demand-side deflation. 
B)  supply-side deflation. 
C)  ozian deflation. 
D)  secular deflation. 
A)  demand-side deflation. 
B)  supply-side deflation. 
C)  ozian deflation. 
D)  secular deflation.

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

When the U.S. price level falls, the open economy effect indicates that

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

The real-balance effect shows that

According to the interest rate effect, a decrease in the price level will

Which one of the following is NOT a component of aggregate demand?

Long-run aggregate supply is

The long-run aggregate supply curve shifts right at the same time as

A weakening in consumer confidence causes a

An individual holds $10,000 in a non-interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expect

The long-run aggregate supply curve

Higher interest rates tend to

Why is the long-run aggregate supply curve a vertical line?

What would likely happen to the long-run aggregate supply curve if the U.S. federal government decreases marginal tax rates on wages?

The horizontal axis for an aggregate demand curve measures

One impact of a rise in the U.S. dollar's value is that

Which of the following is TRUE about how the aggregate demand curve differs from the individual's demand curve?

The wealth effect is another term for the

The various quantities of all final commodities demanded at various price levels, ceteris paribus, is the

Decreases in interest rates have made it less costly to finance purchases of new houses. What impact will this have on U.S. aggregate demand?

A persistently declining price level resulting from economic growth and unchanged aggregate demand is called

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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