Question 1

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) Federal government reduces purchases of new weapons. 
B) The Bank of Canada buys bonds in the open market. 
C) The price level falls. 
D) Net exports fall.

Question 2

Which of the following does real GDP measure?

Accepted Answer

A) the dollar value of all goods 
B) economic activity and income 
C) primarily long-run trends 
D) profitability of all companies in the economy

Question 3

Which of the following could create an increase in the price level and a decrease in real GDP in the short run?

Accepted Answer

A) an increase in the money supply 
B) an increase in government expenditures 
C) a fall in stock prices 
D) bad weather in farm provinces

Question 4

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

The answer of Suppose that a decrease in the demand...

Question 5

Suppose the Canadian economy is in long-run equilibrium. Then suppose the value of the Canadian dollar increases. At the same time, people in Canada revise their expectations so that the expected price level falls. What would we expect will happen 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.

Question 6

Which of the following would happen to Canadian net exports and aggregate demand if countries that imported from Canada went into recession?

Accepted Answer

A) Net exports would rise, and aggregate demand would shift right. 
B) Net exports would rise, and aggregate demand would shift left. 
C) Net exports would fall, and aggregate demand would shift right. 
D) Net exports would fall, and aggregate demand would shift left.

Question 7

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, what would we expect to happen?

Accepted Answer

A) In the short run, real GDP will rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be unaffected. 
B) In the short run, real GDP will fall, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be unaffected. 
C) In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be lower. 
D) In the short run, real GDP will fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same, but real GDP will be lower.

Question 8

All explanations for the upward slope of the short-run aggregate supply curve suppose that output supplied increases when the price level increases more than expected.

Accepted Answer

A) True 
 B)False

Question 9

In the aggregate demand and aggregate supply model, when does the aggregate quantity of goods demanded increase?

Accepted Answer

A) when real wealth falls 
B) when the interest rate rises 
C) when the dollar depreciates 
D) when stock prices decrease

Question 10

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen 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.

Question 11

Which of the following parts of real GDP fluctuates most over the course of the business cycle?

Accepted Answer

A) consumption 
B) government expenditures 
C) investment 
D) net exports

Question 12

Make a list of expenditures whose sum equals GDP.

Accepted Answer

The answer of Make a list of expenditures whose sum...

Question 13

We could explain continued increases in both output and the price level by supposing that only long-run aggregate supply shifted right over time.

Accepted Answer

A) True 
 B)False

Question 14

What are the variables on the vertical and horizontal axes of the aggregate supply and demand curve?

Accepted Answer

A) the price level and real output 
B) real output and employment 
C) employment and the inflation rate 
D) the value of money and the price level

Question 15

If the economy is initially in long-run equilibrium, which of the following best describes the effects of a shift in aggregate demand?

Accepted Answer

A) Prices and output are affected in both the short and long run. 
B) Prices and output are affected only in the short run. 
C) Prices are affected in the long and short run, but output only in the short run. 
D) Prices are affected in the long and short run, but output only in the long run.

Question 16

In which of the following situations does investment spending decrease?

Accepted Answer

A) when the price level rises, causing interest rates to rise 
B) when the price level rises, causing interest rates to fall 
C) when the price level falls, causing interest rates to rise 
D) when the price level falls, causing interest rates to fall

Question 17

What are the recessions of the 1970s often most attributed to?

Accepted Answer

A) declining inflation expectations 
B) an increase in oil prices 
C) declines in the price of stock 
D) decreases in the money supply

Question 18

In 1986, OPEC countries increased their production of oil. What was the result?

Accepted Answer

A) The price level rose. 
B) Aggregate supply shifted right. 
C) Unemployment rose. 
D) Stagflation.

Question 19

An increase in which of the following (assuming the increase was not due to a price level change) shifts aggregate demand to the right?

Accepted Answer

A) interest rates 
B) taxes 
C) government surplus 
D) net exports

Question 20

Which of the following best characterizes the aggregate demand curve?

Accepted Answer

A) It slopes downward because higher prices cause the exchange rate to depreciate. 
B) It slopes downward because higher prices cause real wealth to decrease and interest rates to increase. 
C) It slopes upward because higher prices cause people to increase their production. 
D) It slopes upward because higher prices cause real wealth to increase and interest rates to decrease.

Exam 14: Aggregate Demand and Aggregate Supply