Question 1

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Accepted Answer

A)  decreases the real value of money. 
B)  increases the real value of the dollar in foreign exchange markets. 
C)  decreases the interest rate. 
D)  All of the above are correct. 
A)  decreases the real value of money. 
B)  increases the real value of the dollar in foreign exchange markets. 
C)  decreases the interest rate. 
D)  All of the above are correct.

Question 2

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 3

When the price level increases, the real value of people's money holdings

Accepted Answer

A)  falls, so they buy more. 
B)  falls, so they buy less. 
C)  rises, so they buy more. 
D)  rises, so they buy less. 
A)  falls, so they buy more. 
B)  falls, so they buy less. 
C)  rises, so they buy more. 
D)  rises, so they buy less.

Question 4

Which of the following is correct?

Accepted Answer

A)  The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
B)  The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
C)  The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables. 
D)  Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables. 
A)  The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
B)  The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
C)  The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables. 
D)  Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

Question 5

Financial Crisis
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time.
-Refer to Financial Crisis. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis?

Accepted Answer

A)  both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over 
B)  after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over 
C)  in the long-run equilibrium after the crisis is over but not after the economy reaches long-run equilibrium during the crisis 
D)  neither after the economy reaches long-run equilibrium during the crisis nor in the long-run equilibrium after the crisis is over 
A)  both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over 
B)  after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over 
C)  in the long-run equilibrium after the crisis is over but not after the economy reaches long-run equilibrium during the crisis 
D)  neither after the economy reaches long-run equilibrium during the crisis nor in the long-run equilibrium after the crisis is over

Question 6

Figure 33-17.  
-Refer to Figure 33-17. Suppose the economy starts at P3 and Y2. Explain how government purchases would need to change to move the economy to P2 and Y1. What about taxes?

Accepted Answer

decrease in governme

Question 7

The aggregate demand and aggregate supply model implies monetary neutrality

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short run and the long run. 
D)  in neither the short run nor long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short run and the long run. 
D)  in neither the short run nor long run.

Question 8

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has

Accepted Answer

A)  decreased, so they increase production. 
B)  decreased, so they decrease production. 
C)  increased, so they increase production. 
D)  increased, so they decrease production. 
A)  decreased, so they increase production. 
B)  decreased, so they decrease production. 
C)  increased, so they increase production. 
D)  increased, so they decrease production.

Question 9

In which case can we be sure aggregate demand shifts left overall?

Accepted Answer

A)  people want to save more for retirement and the Fed increases the money supply. 
B)  people want to save more for retirement and the Fed decreases the money supply. 
C)  people want to save less for retirement and the Fed increases the money supply. 
D)  people want to save less for retirement and the Fed decreases the money supply. 
A)  people want to save more for retirement and the Fed increases the money supply. 
B)  people want to save more for retirement and the Fed decreases the money supply. 
C)  people want to save less for retirement and the Fed increases the money supply. 
D)  people want to save less for retirement and the Fed decreases the money supply.

Question 10

At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in

Accepted Answer

A)  both the United States and Europe. 
B)  the United States but not Europe. 
C)  Europe, but not the United States. 
D)  neither the United States, nor Europe. 
A)  both the United States and Europe. 
B)  the United States but not Europe. 
C)  Europe, but not the United States. 
D)  neither the United States, nor Europe.

Question 11

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

Accepted Answer

A)  the slope of short-run aggregate supply. 
B)  the slope of long-run aggregate supply. 
C)  the slope of the aggregate-demand curve. 
D)  everything that makes the aggregate-demand curve shift. 
A)  the slope of short-run aggregate supply. 
B)  the slope of long-run aggregate supply. 
C)  the slope of the aggregate-demand curve. 
D)  everything that makes the aggregate-demand curve shift.

Question 12

Suppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?

Accepted Answer

A decrease in aggregate demand causes th

Question 13

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Accepted Answer

A)  the real value of wealth 
B)  the interest rate 
C)  the value of currency in the market for foreign exchange 
D)  All of the above are correct. 
A)  the real value of wealth 
B)  the interest rate 
C)  the value of currency in the market for foreign exchange 
D)  All of the above are correct.

Question 14

An increase in the interest rate causes investment to

Accepted Answer

A)  rise and the exchange rate to appreciate. 
B)  fall and the exchange rate to depreciate. 
C)  rise and the exchange rate to depreciate. 
D)  fall and the exchange rate to appreciate. 
A)  rise and the exchange rate to appreciate. 
B)  fall and the exchange rate to depreciate. 
C)  rise and the exchange rate to depreciate. 
D)  fall and the exchange rate to appreciate.

Question 15

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  an increase in the price level. 
B)  households decide to save a larger fraction of their income. 
C)  an increase in net exports. 
D)  Congress passes a new investment tax credit. 
A)  an increase in the price level. 
B)  households decide to save a larger fraction of their income. 
C)  an increase in net exports. 
D)  Congress passes a new investment tax credit.

Question 16

When the money supply increases

Accepted Answer

A)  interest rates fall and so aggregate demand shifts right. 
B)  interest rates fall and so aggregate demand shifts left. 
C)  interest rates rise and so aggregate demand shifts right. 
D)  interest rates rise and so aggregate demand shifts left. 
A)  interest rates fall and so aggregate demand shifts right. 
B)  interest rates fall and so aggregate demand shifts left. 
C)  interest rates rise and so aggregate demand shifts right. 
D)  interest rates rise and so aggregate demand shifts left.

Question 17

Other things the same, the aggregate quantity of goods demanded decreases if

Accepted Answer

A)  real wealth falls. 
B)  the interest rate rises. 
C)  the dollar appreciates. 
D)  All of the above are correct. 
A)  real wealth falls. 
B)  the interest rate rises. 
C)  the dollar appreciates. 
D)  All of the above are correct.

Question 18

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

Accepted Answer

A) True 
 B)False

Question 19

Figure 33-6.  
-Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?

Accepted Answer

A)  LRAS1 
B)  LRAS2 
C)  LRAS3 
D)  Both LRAS1 and LRAS3 
A)  LRAS1 
B)  LRAS2 
C)  LRAS3 
D)  Both LRAS1 and LRAS3

Question 20

Other things the same, as the price level rises, exchange rates

Accepted Answer

A)  and interest rates rise. 
B)  and interest rates fall. 
C)  fall and interest rates rise. 
D)  rise and interest rates fall. 
A)  and interest rates rise. 
B)  and interest rates fall. 
C)  fall and interest rates rise. 
D)  rise and interest rates fall.

Exam 23: Aggregate Demand and Aggregate Supply

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

When the price level increases, the real value of people's money holdings

Which of the following is correct?

Figure 33-17. -Refer to Figure 33-17. Suppose the economy starts at P3 and Y2. Explain how government purchases would need to change to move the economy to P2 and Y1. What about taxes?

The aggregate demand and aggregate supply model implies monetary neutrality

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has

In which case can we be sure aggregate demand shifts left overall?

At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

Suppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?

When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

An increase in the interest rate causes investment to

Which of the following shifts aggregate demand to the left?

When the money supply increases

Other things the same, the aggregate quantity of goods demanded decreases if

Other things the same, as the price level falls, the exchange rate rises. A rise in the exchange rate leads to a decrease in net exports.

Figure 33-6. -Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a short-run economic expansion?

Other things the same, as the price level rises, exchange rates

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

Filters