Question 1

Which of the following is another term for the recovery period?

Accepted Answer

A) Medium run 
B) Recession 
C) Short run 
D) Boom 
E) Long run 
A) Medium run 
B) Recession 
C) Short run 
D) Boom 
E) Long run

Question 2

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

Accepted Answer

A) True 
 B)False

Question 3

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

Accepted Answer

The rapid increase in housing prices dur

Question 4

The long-run effect of increased government purchases is crowding out.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 25-1  
-Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the short run as a result of the change in spending?

Accepted Answer

A) F 
B) D 
C) B 
D) E 
E) C 
A) F 
B) D 
C) B 
D) E 
E) C

Question 6

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.

Accepted Answer

This statement is incorrect. It's true i

Question 7

Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.

Accepted Answer

If the income tax rate increases, dispos

Question 8

The long-run effect of a change in expenditures occurs when

Accepted Answer

A) a spending balance is achieved. 
B) the recovery period begins. 
C) interest rates begin to adjust. 
D) real GDP is nearly back to equaling potential GDP. 
E) the AD line intersects the IA line. 
A) a spending balance is achieved. 
B) the recovery period begins. 
C) interest rates begin to adjust. 
D) real GDP is nearly back to equaling potential GDP. 
E) the AD line intersects the IA line.

Question 9

Recent economic fluctuations in the U.S. economy are best explained by

Accepted Answer

A) shifts of the aggregate demand curve. 
B) changes in potential GDP. 
C) shifts of the inflation adjustment line. 
D) price shocks. 
E) changes in aggregate supply. 
A) shifts of the aggregate demand curve. 
B) changes in potential GDP. 
C) shifts of the inflation adjustment line. 
D) price shocks. 
E) changes in aggregate supply.

Question 10

What is meant by the term stagflation?

Accepted Answer

Stagflation is the word used to describe

Question 11

The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Accepted Answer

A) True 
 B)False

Question 12

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

Accepted Answer

A) Potential GDP will change by the same amount as aggregate expenditure. 
B) The AD curve will shift. 
C) Both the AD curve and the IA line will shift. 
D) The IA line will shift. 
E) There will be movement along the AD curve. 
A) Potential GDP will change by the same amount as aggregate expenditure. 
B) The AD curve will shift. 
C) Both the AD curve and the IA line will shift. 
D) The IA line will shift. 
E) There will be movement along the AD curve.

Question 13

A price shock is

Accepted Answer

A) a shift in the aggregate demand curve. 
B) the same as a demand shock. 
C) a change in potential GDP. 
D) the same as a supply shock. 
E) a shift in the inflation adjustment line. 
A) a shift in the aggregate demand curve. 
B) the same as a demand shock. 
C) a change in potential GDP. 
D) the same as a supply shock. 
E) a shift in the inflation adjustment line.

Question 14

Interest rates typically rise prior to a recession.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) E 
A) A 
B) B 
C) C 
D) D 
E) E

Question 16

A temporary growth slowdown results in a

Accepted Answer

A) disinflation. 
B) deflation. 
C) boom. 
D) fall in the price level. 
E) recession. 
A) disinflation. 
B) deflation. 
C) boom. 
D) fall in the price level. 
E) recession.

Question 17

Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.

Accepted Answer

The initial impact will be an upward shi

Question 18

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

Accepted Answer

A) True 
 B)False

Question 19

If real GDP stays below potential GDP,

Accepted Answer

A) the AD curve will begin to shift to the left. 
B) the IA line will shift down. 
C) potential GDP will decline. 
D) the IA line will shift up. 
E) the AD curve will begin to shift to the right. 
A) the AD curve will begin to shift to the left. 
B) the IA line will shift down. 
C) potential GDP will decline. 
D) the IA line will shift up. 
E) the AD curve will begin to shift to the right.

Question 20

In the short run, when government purchases fall, income and hence consumption fall, so

Accepted Answer

A) real GDP falls by more than the fall in government purchases. 
B) both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C) real GDP falls by the same amount as the fall in government purchases. 
D) real GDP falls by less than the fall in government purchases. 
E) both real GDP and potential GDP fall by more than the fall in government purchases. 
A) real GDP falls by more than the fall in government purchases. 
B) both real GDP and potential GDP fall by the same amount as the fall in government purchases. 
C) real GDP falls by the same amount as the fall in government purchases. 
D) real GDP falls by less than the fall in government purchases. 
E) both real GDP and potential GDP fall by more than the fall in government purchases.

Exam 25: Using the Economic Fluctuations Model

Which of the following is another term for the recovery period?

If there is a temporary growth slowdown, real GDP will not go below potential GDP.

Explain how two shifts in the aggregate demand curve help explain economic fluctuations in the United States from early 2000s through early 2009.

The long-run effect of increased government purchases is crowding out.

Exhibit 25-1 -Suppose the economy is initially at point A in Exhibit 25-1. If government purchases increase, which point best depicts where the economy will be in the short run as a result of the change in spending?

Since there is no single explanation for what caused the 2007-08 financial crisis and the corresponding recession, the aggregate demand inflation adjustment model is of no use. Please comment.

Suppose the income tax rate increases. What will happen to consumption, investment, and net exports in the short run and the long run? Explain your results, using a diagram with the aggregate demand curve and the inflation adjustment line.

The long-run effect of a change in expenditures occurs when

Recent economic fluctuations in the U.S. economy are best explained by

What is meant by the term stagflation?

The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Suppose real and potential GDP are initially equal. If government purchases change, which of the following best explains what will happen first?

A price shock is

Interest rates typically rise prior to a recession.

Suppose the economy is initially at point A in the diagram below, and there is a sudden increase in oil prices that the central bank believes is only temporary. Which point best depicts where the economy will end up in the short run?

A temporary growth slowdown results in a

Suppose oil prices increase sharply. Trace the short-run, medium-run, and long-run effects this will have on the economy.

The long-run effect of increased government purchases is that the sum of consumption, investment, and net exports will be lower than it would be in the baseline case.

If real GDP stays below potential GDP,

In the short run, when government purchases fall, income and hence consumption fall, so

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

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