Question 1

According to the wealth effect, aggregate demand slopes downward (negatively) because lower prices

Accepted Answer

A)  increase the value of money holdings and consumer spending increases. 
B)  decrease the value of money holdings and consumer spending decreases. 
C)  reduce money holdings, increase lending, interest rates fall, and investment spending increases. 
D)  increase money holdings, decrease lending, interest rates rise, and investment spending falls. 
A)  increase the value of money holdings and consumer spending increases. 
B)  decrease the value of money holdings and consumer spending decreases. 
C)  reduce money holdings, increase lending, interest rates fall, and investment spending increases. 
D)  increase money holdings, decrease lending, interest rates rise, and investment spending falls.

Question 2

When studying the short run, the assumption of money neutrality is

Accepted Answer

A)  not appropriate. 
B)  increasingly important. 
C)  still relevant but the classical dichotomy no longer holds. 
D)  Both b and c are correct. 
A)  not appropriate. 
B)  increasingly important. 
C)  still relevant but the classical dichotomy no longer holds. 
D)  Both b and c are correct.

Question 3

Which of the following will reduce the price level and raise real output?

Accepted Answer

A)  an adjustment of prices to equilibrium 
B)  an increase in wage rates 
C)  the short-run aggregate supply curve becoming steeper 
D)  technical progress 
A)  an adjustment of prices to equilibrium 
B)  an increase in wage rates 
C)  the short-run aggregate supply curve becoming steeper 
D)  technical progress

Question 4

Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers allow the economy to adjust to the long-run natural rate on its own, people will

Accepted Answer

A)  reduce their price expectations and the short-run aggregate supply will shift right. 
B)  raise their price expectations and aggregate demand will shift left. 
C)  raise their price expectations and the short-run aggregate supply will shift left. 
D)  reduce their price expectations and aggregate demand will shift right. 
A)  reduce their price expectations and the short-run aggregate supply will shift right. 
B)  raise their price expectations and aggregate demand will shift left. 
C)  raise their price expectations and the short-run aggregate supply will shift left. 
D)  reduce their price expectations and aggregate demand will shift right.

Question 5

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve

Accepted Answer

A)  is vertical because an equal change in all prices and wages leaves output unaffected. 
B)  is positively sloped because price expectations and wages tend to be fixed in the long run. 
C)  shifts right when the government raises the minimum wage. 
D)  shifts left when the natural rate of unemployment falls. 
A)  is vertical because an equal change in all prices and wages leaves output unaffected. 
B)  is positively sloped because price expectations and wages tend to be fixed in the long run. 
C)  shifts right when the government raises the minimum wage. 
D)  shifts left when the natural rate of unemployment falls.

Question 6

What do most economists believe concerning the relation between the price level and real output?

Accepted Answer

Most economists believe that in the long

Question 7

Which of the following explains why production rises in most years?

Accepted Answer

A)  increases in the labour force 
B)  increases in the capital stock 
C)  advances in technological knowledge 
D)  All of the above are correct. 
A)  increases in the labour force 
B)  increases in the capital stock 
C)  advances in technological knowledge 
D)  All of the above are correct.

Question 8

List and discuss three key facts about economic fluctuations.

Accepted Answer

Three key facts about economic fluctuati

Question 9

Any factor that increases resource availability causes

Accepted Answer

A)  an increase in aggregate demand. 
B)  a decrease in aggregate demand. 
C)  an increase in aggregate supply. 
D)  a decrease in aggregate supply. 
A)  an increase in aggregate demand. 
B)  a decrease in aggregate demand. 
C)  an increase in aggregate supply. 
D)  a decrease in aggregate supply.

Question 10

Figure 1   ​ Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift

Accepted Answer

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

Question 11

Recession in the UK will cause

Accepted Answer

A)  an upward movement along the UK aggregate demand curve. 
B)  a downward movement along the UK aggregate demand curve. 
C)  the UK aggregate supply curve to shift to the right. 
D)  the UK aggregate demand curve to shift to the left. 
A)  an upward movement along the UK aggregate demand curve. 
B)  a downward movement along the UK aggregate demand curve. 
C)  the UK aggregate supply curve to shift to the right. 
D)  the UK aggregate demand curve to shift to the left.

Question 12

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

Accepted Answer

A) True 
 B)False

Question 13

When we say that economic fluctuations are "irregular and unpredictable," we mean that

Accepted Answer

A)  the relationship between output and unemployment is erratic and difficult to characterize. 
B)  when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising. 
C)  recessions do not occur at regular intervals. 
D)  All of the above are correct. 
A)  the relationship between output and unemployment is erratic and difficult to characterize. 
B)  when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising. 
C)  recessions do not occur at regular intervals. 
D)  All of the above are correct.

Question 14

In the long run, an increase in government spending tends to increase output and prices.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Accepted Answer

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

Question 16

A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a reason why the aggregate demand curve slopes downward?

Accepted Answer

A)  The exchange-rate effect 
B)  The wealth effect. 
C)  The classical dichotomy/monetary neutrality effects. 
D)  The interest-rate effect 
E)  All of these answers are reasons why the aggregate-demand curve slopes downward. 
A)  The exchange-rate effect 
B)  The wealth effect. 
C)  The classical dichotomy/monetary neutrality effects. 
D)  The interest-rate effect 
E)  All of these answers are reasons why the aggregate-demand curve slopes downward.

Question 18

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Accepted Answer

When people expect the price l

Question 19

Movements along the aggregate supply curve are caused by changes in

Accepted Answer

A)  technology. 
B)  government regulations. 
C)  wages and salaries. 
D)  the price level. 
A)  technology. 
B)  government regulations. 
C)  wages and salaries. 
D)  the price level.

Question 20

The natural rate of output is the amount of real GDP produced when

Accepted Answer

A)  the economy is at the natural rate of unemployment. 
B)  the economy is at the natural rate of investment. 
C)  the economy is at the natural rate of aggregate demand. 
D)  there is no unemployment. 
A)  the economy is at the natural rate of unemployment. 
B)  the economy is at the natural rate of investment. 
C)  the economy is at the natural rate of aggregate demand. 
D)  there is no unemployment.

Exam 33: Aggregate Demand and Aggregate Supply

According to the wealth effect, aggregate demand slopes downward (negatively) because lower prices

When studying the short run, the assumption of money neutrality is

Which of the following will reduce the price level and raise real output?

Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers allow the economy to adjust to the long-run natural rate on its own, people will

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve

What do most economists believe concerning the relation between the price level and real output?

Which of the following explains why production rises in most years?

List and discuss three key facts about economic fluctuations.

Any factor that increases resource availability causes

Figure 1 ​ Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift

Recession in the UK will cause

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

When we say that economic fluctuations are "irregular and unpredictable," we mean that

In the long run, an increase in government spending tends to increase output and prices.

Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.

Which of the following is not a reason why the aggregate demand curve slopes downward?

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Movements along the aggregate supply curve are caused by changes in

The natural rate of output is the amount of real GDP produced when

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

Filters

Figure 1 Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift