Question 1

What does the slope of the aggregate demand curve indicate?

Accepted Answer

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

Question 2

The experience of recessions in Australia has shown that the unemployment rate

Accepted Answer

A)   rises for about six months after the recession has finished.
B)   rises for at least one year after the recession has finished.
C)   falls within one year of a recession finishing.
D)   falls within six months of a recession finishing. B

Question 3

During an economic expansion or boom,it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

Accepted Answer

A) True 
 B)False  True

Question 4

When does short-run macroeconomic equilibrium occur?

Accepted Answer

A)   When the price level is constant in the short run.
B)   When the equilibrium lies on the long-run supply curve.
C)   When aggregate demand and short-run supply intersect.
D)   The two criteria-that aggregate demand and short-run aggregate supply intersect and that the equilibrium lies on the long-run supply curve-must both be satisfied.

Question 5

A period of economic expansion ends with a business cycle trough.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

Accepted Answer

A)   Contracts make prices and wages 'sticky'.
B)   Firms are often slow to adjust wages.
C)   Menu costs make some prices sticky.
D)   Unions are successful in pushing up wages.

Question 7

A period of expansion in the business cycle ends when

Accepted Answer

A)   real GDP is equal to potential GDP.
B)   the business cycle reaches its peak.
C)   the business cycle reaches its trough.
D)   real GDP is less than potential GDP.

Question 8

The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.

Accepted Answer

A) True 
 B)False

Question 9

When does long-run macroeconomic equilibrium occur?

Accepted Answer

A)   When aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.
B)   When aggregate demand equals short-run aggregate supply.
C)   When unemployment equals zero.
D)   When output is above potential GDP.

Question 10

Which of the following would not be considered a positive addition to household wealth?

Accepted Answer

A)   The equity that homeowners have in their own homes
B)   1000 shares in Qantas Airlines
C)   A credit card balance
D)   The balance in a savings account

Question 11

Explain what happens to inflation and unemployment during the business cycle.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Explain what happens to inflation and unemployment...

Question 12

Explain how each of the following events would affect the short-run aggregate supply curve.
a.A decrease in the price level.
b.A decrease in what the price level is expected to be in the future.
c.A price level that is currently lower than expected.
d.An unexpected decrease in the price of an important raw material.
e.A decrease in the labour force.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Explain how each of the following events...

Question 13

Which of the points in Figure 15.1 are possible short-run equilibriums but not long-run equilibriums?

Accepted Answer

A)   A and B
B)   A and C
C)   C and D
D)   B and D

Question 14

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.

Question 15

How is the 'inflation rate' defined?

Accepted Answer

A)   The percentage decrease in the price level between time periods.
B)   The percentage change in the price level between time periods.
C)   The dollar increase in prices between time periods.
D)   The percentage change in real GDP during a year.

Question 16

Outline and explain the factors that shift the aggregate demand curve and the short-run and long-run aggregate supply curves.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Outline and explain the factors that shift...

Question 17

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

Accepted Answer

A) True 
 B)False

Question 18

Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level,particularly with respect to decreases in aggregate demand.Describe how the aggregate demand curve is different in the dynamic model as compared to the static model,and describe how potential GDP is different in the dynamic model as compared to the static model.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Explain how the static aggregate demand and...

Question 19

If workers expect the rate of inflation to rise from 4 per cent to 6 per cent next year,this should

Accepted Answer

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

Question 20

Why does the short-run aggregate supply curve shift to the left in the long run,following an increase 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.

Exam 15: Aggregate Demand and Aggregate Supply Analysis

What does the slope of the aggregate demand curve indicate?

The experience of recessions in Australia has shown that the unemployment rate

During an economic expansion or boom,it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

When does short-run macroeconomic equilibrium occur?

A period of economic expansion ends with a business cycle trough.

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

A period of expansion in the business cycle ends when

The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.

When does long-run macroeconomic equilibrium occur?

Which of the following would not be considered a positive addition to household wealth?

Explain what happens to inflation and unemployment during the business cycle. _ _

Which of the points in Figure 15.1 are possible short-run equilibriums but not long-run equilibriums?

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

How is the 'inflation rate' defined?

Outline and explain the factors that shift the aggregate demand curve and the short-run and long-run aggregate supply curves. _ _

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

If workers expect the rate of inflation to rise from 4 per cent to 6 per cent next year,this should

Why does the short-run aggregate supply curve shift to the left in the long run,following an increase in aggregate demand?

Exam 15: Aggregate Demand and Aggregate Supply Analysis

What does the slope of the aggregate demand curve indicate?

The experience of recessions in Australia has shown that the unemployment rate

During an economic expansion or boom,it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

When does short-run macroeconomic equilibrium occur?

A period of economic expansion ends with a business cycle trough.

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

A period of expansion in the business cycle ends when

The lengths of the recession and expansion phases and which sectors of the economy are most affected will rarely be the same in any two business cycles.

When does long-run macroeconomic equilibrium occur?

Which of the following would not be considered a positive addition to household wealth?

Explain what happens to inflation and unemployment during the business cycle. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the points in Figure 15.1 are possible short-run equilibriums but not long-run equilibriums?

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

How is the 'inflation rate' defined?

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

If workers expect the rate of inflation to rise from 4 per cent to 6 per cent next year,this should

Why does the short-run aggregate supply curve shift to the left in the long run,following an increase in aggregate demand?

Explain what happens to inflation and unemployment during the business cycle. _ _