Question 1

Most economists believe that money neutrality

Accepted Answer

A)  does not hold in the short run. 
B)  does not hold in the long run. 
C)  does not hold in either the short run or long run. 
D)  holds in the short run and the long run. 
A)  does not hold in the short run. 
B)  does not hold in the long run. 
C)  does not hold in either the short run or long run. 
D)  holds in the short run and the long run.

Question 2

An increase in the expected price level shifts short-run aggregate supply to the

Accepted Answer

A)  right, and an increase in the actual price level shifts short-run aggregate supply to the right. 
B)  right, and an increase in the actual price level does not shift short-run aggregate supply. 
C)  left, and an increase in the actual price level shifts short-run aggregate supply to the left. 
D)  left, and an increase in the actual price level does not shift short-run aggregate supply. 
A)  right, and an increase in the actual price level shifts short-run aggregate supply to the right. 
B)  right, and an increase in the actual price level does not shift short-run aggregate supply. 
C)  left, and an increase in the actual price level shifts short-run aggregate supply to the left. 
D)  left, and an increase in the actual price level does not shift short-run aggregate supply.

Question 3

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

Accepted Answer

A) True 
 B)False

Question 4

The aggregate demand and aggregate supply graph has

Accepted Answer

A)  the price level on the horizontal axis. The price level can be measured by the GDP deflator. 
B)  the price level on the horizontal axis. The price level can be measured by real GDP. 
C)  the price level on the vertical axis. The price level can be measured by the GDP deflator. 
D)  the price level on the vertical axis. The price level can be measured by GDP. 
A)  the price level on the horizontal axis. The price level can be measured by the GDP deflator. 
B)  the price level on the horizontal axis. The price level can be measured by real GDP. 
C)  the price level on the vertical axis. The price level can be measured by the GDP deflator. 
D)  the price level on the vertical axis. The price level can be measured by GDP.

Question 5

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have

Accepted Answer

A)  higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 
B)  higher than desired prices, which leads to a decrease in the aggregate quantity of goods and service supplied. 
C)  lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 
D)  lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied 
A)  higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 
B)  higher than desired prices, which leads to a decrease in the aggregate quantity of goods and service supplied. 
C)  lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. 
D)  lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied

Question 6

A change in the expected price level is likely to cause which of the following?

Accepted Answer

A)  a shift in the short-run aggregate supply curve and long-run aggregate supply curve 
B)  a shift in the short run aggregate supply curve 
C)  a shift in the aggregate demand curve 
D)  a shift in the long-run aggregate supply curve 
A)  a shift in the short-run aggregate supply curve and long-run aggregate supply curve 
B)  a shift in the short run aggregate supply curve 
C)  a shift in the aggregate demand curve 
D)  a shift in the long-run aggregate supply curve

Question 7

The aggregate demand curve shifts left if either

Accepted Answer

A)  speculators gain confidence in U.S. assets or foreign countries enter into recession. 
B)  speculators gain confidence in U.S. assets or recessions in foreign countries end. 
C)  speculators lose confidence in U.S. assets or foreign countries enter into recession. 
D)  speculators lose confidence in U.S. assets or recessions in foreign countries end. 
A)  speculators gain confidence in U.S. assets or foreign countries enter into recession. 
B)  speculators gain confidence in U.S. assets or recessions in foreign countries end. 
C)  speculators lose confidence in U.S. assets or foreign countries enter into recession. 
D)  speculators lose confidence in U.S. assets or recessions in foreign countries end.

Question 8

The short-run effects of an increase in the expected price level include

Accepted Answer

A)  a lower level of output and a lower price level. 
B)  a lower level of output and a higher price level. 
C)  a higher level of output and a lower price level. 
D)  a higher level of output and a higher price level. 
A)  a lower level of output and a lower price level. 
B)  a lower level of output and a higher price level. 
C)  a higher level of output and a lower price level. 
D)  a higher level of output and a higher price level.

Question 9

The initial impact of an increase in an investment tax credit is to shift

Accepted Answer

A)  aggregate demand right. 
B)  aggregate demand left. 
C)  aggregate supply right. 
D)  aggregate supply left. 
A)  aggregate demand right. 
B)  aggregate demand left. 
C)  aggregate supply right. 
D)  aggregate supply left.

Question 10

People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

Accepted Answer

A)  both sticky price theory and sticky wage theory 
B)  sticky price theory but not sticky wage theory 
C)  sticky wage theory but not sticky price theory 
D)  neither sticky wage theory nor sticky price theory 
A)  both sticky price theory and sticky wage theory 
B)  sticky price theory but not sticky wage theory 
C)  sticky wage theory but not sticky price theory 
D)  neither sticky wage theory nor sticky price theory

Question 11

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Accepted Answer

A) True 
 B)False

Question 12

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

Accepted Answer

A)  the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. 
B)  the real value of money decreases; in turn, interest rates increase, which decreases net exports. 
C)  households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. 
D)  households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods. 
A)  the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. 
B)  the real value of money decreases; in turn, interest rates increase, which decreases net exports. 
C)  households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. 
D)  households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

Question 13

When the price level falls

Accepted Answer

A)  households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise. 
B)  households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise. 
C)  households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall. 
D)  None of the above are correct. 
A)  households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise. 
B)  households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise. 
C)  households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall. 
D)  None of the above are correct.

Question 14

Aggregate demand shifts left if

Accepted Answer

A)  government purchases increase and shifts left if stock prices rise. 
B)  government purchases increase and shifts left if stock prices fall. 
C)  government purchases decrease and shifts left if stock prices rise. 
D)  government purchases decrease and shifts left is stock prices fall. 
A)  government purchases increase and shifts left if stock prices rise. 
B)  government purchases increase and shifts left if stock prices fall. 
C)  government purchases decrease and shifts left if stock prices rise. 
D)  government purchases decrease and shifts left is stock prices fall.

Question 15

Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

Accepted Answer

A)  real GDP will rise and the price level might rise, fall, or stay the same. 
B)  real GDP will fall and the price level might rise, fall, or stay the same. 
C)  the price level will rise, and real GDP might rise, fall, or stay the same. 
D)  the price level will fall, and real GDP might rise, fall, or stay the same. 
A)  real GDP will rise and the price level might rise, fall, or stay the same. 
B)  real GDP will fall and the price level might rise, fall, or stay the same. 
C)  the price level will rise, and real GDP might rise, fall, or stay the same. 
D)  the price level will fall, and real GDP might rise, fall, or stay the same.

Question 16

Recessions in Canada and Mexico would cause

Accepted Answer

A)  the U.S. price level and real GDP to rise. 
B)  the U.S. price level and real GDP to fall. 
C)  the U.S. price level to rise and real GDP to fall. 
D)  the U.S. price level to fall and real GDP to rise. 
A)  the U.S. price level and real GDP to rise. 
B)  the U.S. price level and real GDP to fall. 
C)  the U.S. price level to rise and real GDP to fall. 
D)  the U.S. price level to fall and real GDP to rise.

Question 17

Which of the following is correct concerning recessions?

Accepted Answer

A)  They come at fairly regular and predictable intervals. 
B)  They are associated with comparatively large increases in investment spending. 
C)  They are any period when real GDP growth is less than average. 
D)  They tend to be associated with rising unemployment rates. 
A)  They come at fairly regular and predictable intervals. 
B)  They are associated with comparatively large increases in investment spending. 
C)  They are any period when real GDP growth is less than average. 
D)  They tend to be associated with rising unemployment rates.

Question 18

Which of the following fall during a recession?

Accepted Answer

A)  both retail sales and employment 
B)  retail sales but not employment 
C)  employment but not retail sales 
D)  neither employment nor retail sales 
A)  both retail sales and employment 
B)  retail sales but not employment 
C)  employment but not retail sales 
D)  neither employment nor retail sales

Question 19

During recessions

Accepted Answer

A)  sales and profits fall. 
B)  sales and profits rise. 
C)  sales rise, profits fall. 
D)  profits fall, sales rise. 
A)  sales and profits fall. 
B)  sales and profits rise. 
C)  sales rise, profits fall. 
D)  profits fall, sales rise.

Question 20

What do most economists believe concerning the relation between the price level and real output?

Accepted Answer

Most economists believe that in the long

Exam 23: Aggregate Demand and Aggregate Supply

Most economists believe that money neutrality

An increase in the expected price level shifts short-run aggregate supply to the

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

The aggregate demand and aggregate supply graph has

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have

A change in the expected price level is likely to cause which of the following?

The aggregate demand curve shifts left if either

The short-run effects of an increase in the expected price level include

The initial impact of an increase in an investment tax credit is to shift

People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

When the price level falls

Aggregate demand shifts left if

Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

Recessions in Canada and Mexico would cause

Which of the following is correct concerning recessions?

Which of the following fall during a recession?

During recessions

What do most economists believe concerning the relation between the price level and real output?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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