Question 1

If policy makers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is most commonly used to monitor short-run changes in economic activity?

Accepted Answer

A)  the inflation rate 
B)  real GDP 
C)  aggregate demand 
D)  aggregate supply 
A)  the inflation rate 
B)  real GDP 
C)  aggregate demand 
D)  aggregate supply

Question 3

Which of the following will reduce the price level and reduce real output in the short run?

Accepted Answer

A)  an increase in the money supply 
B)  an increase in oil prices 
C)  a decrease in the money supply 
D)  technical progress 
A)  an increase in the money supply 
B)  an increase in oil prices 
C)  a decrease in the money supply 
D)  technical progress

Question 4

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause prices to

Accepted Answer

A)  rise and output to rise. 
B)  fall and output to remain unchanged. 
C)  fall and output to fall. 
D)  rise and output to remain unchanged. 
A)  rise and output to rise. 
B)  fall and output to remain unchanged. 
C)  fall and output to fall. 
D)  rise and output to remain unchanged.

Question 5

Explain the short-run and long-run effects on output and prices of a recession overseas causing foreigners to buy fewer U.K. goods. Create a chart to demonstrate the effects.

Accepted Answer

When a recession overseas causes foreign

Question 6

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to shift the

Accepted Answer

A)  short-run aggregate supply curve to the left. 
B)  aggregate demand curve to the right. 
C)  short-run aggregate supply curve to the right. 
D)  aggregate demand curve to the left. 
E)  long-run aggregate supply curve to the left. 
A)  short-run aggregate supply curve to the left. 
B)  aggregate demand curve to the right. 
C)  short-run aggregate supply curve to the right. 
D)  aggregate demand curve to the left. 
E)  long-run aggregate supply curve to the left.

Question 7

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Accepted Answer

A)  Prices rise; output falls. 
B)  Prices fall; output rises. 
C)  Prices rise; output rises. 
D)  Prices fall; output falls. 
A)  Prices rise; output falls. 
B)  Prices fall; output rises. 
C)  Prices rise; output rises. 
D)  Prices fall; output falls.

Question 8

Investment is a particularly volatile component of spending across the business cycle.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

Accepted Answer

A)  sticky-wage theory of the short-run aggregate supply curve. 
B)  classical dichotomy theory of the short-run aggregate supply curve. 
C)  misperceptions theory of the short-run aggregate supply curve. 
D)  sticky-price theory of the short-run aggregate supply curve. 
A)  sticky-wage theory of the short-run aggregate supply curve. 
B)  classical dichotomy theory of the short-run aggregate supply curve. 
C)  misperceptions theory of the short-run aggregate supply curve. 
D)  sticky-price theory of the short-run aggregate supply curve.

Question 10

Make a list of things that would shift the aggregate demand curve to the right.

Accepted Answer

Examples (and variations on examples) in

Question 11

Which of the following is correct?

Accepted Answer

A)  Short run fluctuations in economic activity happen only in developing countries. 
B)  During economic contractions most firms experience rising sales. 
C)  Recessions come at regular intervals and are easy to predict. 
D)  When real GDP falls, the rate of unemployment rises. 
A)  Short run fluctuations in economic activity happen only in developing countries. 
B)  During economic contractions most firms experience rising sales. 
C)  Recessions come at regular intervals and are easy to predict. 
D)  When real GDP falls, the rate of unemployment rises.

Question 12

Stagflation occurs when the economy experiences

Accepted Answer

A)  rising prices and rising output. 
B)  rising prices and falling output. 
C)  falling prices and falling output. 
D)  falling prices and rising output. 
A)  rising prices and rising output. 
B)  rising prices and falling output. 
C)  falling prices and falling output. 
D)  falling prices and rising output.

Question 13

Shifts in aggregate demand affect the price level in

Accepted Answer

A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run. 
A)  the short run but not in the long run. 
B)  the long run but not in the short run. 
C)  both the short and long run. 
D)  neither the short nor long run.

Question 14

There are three factors that help explain the downward slope of the aggregate demand curve. Discuss the importance of these factors.

Accepted Answer

The three factors are the wealth effect,

Question 15

The misperceptions theory explains why the long-run aggregate supply curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 16

If there is speculation that the economy will soon enter a recession, which means that our incomes will probably fall, then the immediate effect on the economy now will be that the

Accepted Answer

A)  aggregate supply curve will shift to the left. 
B)  aggregate demand curve will shift to the right. 
C)  price level will rise and real output will rise. 
D)  price level will fall and real output will fall. 
A)  aggregate supply curve will shift to the left. 
B)  aggregate demand curve will shift to the right. 
C)  price level will rise and real output will rise. 
D)  price level will fall and real output will fall.

Question 17

The classical dichotomy refers to the separation of

Accepted Answer

A)  variables that move with the business cycle and variables that do not. 
B)  changes in money and changes in government expenditures. 
C)  decisions made by the public and decisions made by the government. 
D)  real and nominal variables. 
A)  variables that move with the business cycle and variables that do not. 
B)  changes in money and changes in government expenditures. 
C)  decisions made by the public and decisions made by the government. 
D)  real and nominal variables.

Question 18

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the

Accepted Answer

A)  misperceptions theory of the short-run aggregate supply curve. 
B)  classical dichotomy theory of the short-run aggregate supply curve. 
C)  sticky-price theory of the short-run aggregate supply curve. 
D)  sticky-wage theory of the short-run aggregate supply curve. 
A)  misperceptions theory of the short-run aggregate supply curve. 
B)  classical dichotomy theory of the short-run aggregate supply curve. 
C)  sticky-price theory of the short-run aggregate supply curve. 
D)  sticky-wage theory of the short-run aggregate supply curve.

Question 19

Explain the short-run and long-run effects on output and prices of technological improvements. Create a chart to demonstrate the effects.

Accepted Answer

When a technological improvement raises

Question 20

The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.

Accepted Answer

A) True 
 B)False

Exam 33: Aggregate Demand and Aggregate Supply

If policy makers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand.

Which of the following is most commonly used to monitor short-run changes in economic activity?

Which of the following will reduce the price level and reduce real output in the short run?

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause prices to

Explain the short-run and long-run effects on output and prices of a recession overseas causing foreigners to buy fewer U.K. goods. Create a chart to demonstrate the effects.

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to shift the

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Investment is a particularly volatile component of spending across the business cycle.

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

Make a list of things that would shift the aggregate demand curve to the right.

Which of the following is correct?

Stagflation occurs when the economy experiences

Shifts in aggregate demand affect the price level in

There are three factors that help explain the downward slope of the aggregate demand curve. Discuss the importance of these factors.

The misperceptions theory explains why the long-run aggregate supply curve is downward sloping.

If there is speculation that the economy will soon enter a recession, which means that our incomes will probably fall, then the immediate effect on the economy now will be that the

The classical dichotomy refers to the separation of

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the

Explain the short-run and long-run effects on output and prices of technological improvements. Create a chart to demonstrate the effects.

The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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