Question 1

All other things unchanged, an increase in personal income tax rates will

Accepted Answer

A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  make the aggregate demand curve flatter. 
D)  make the aggregate demand curve steeper. 
A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  make the aggregate demand curve flatter. 
D)  make the aggregate demand curve steeper. B

Question 2

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Accepted Answer

A)  The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B)  The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C)  The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D)  The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis. 
A)  The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B)  The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C)  The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D)  The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis. C

Question 3

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

Accepted Answer

A)  The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B)  The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 
C)  The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
D)  The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. 
A)  The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B)  The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 
C)  The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
D)  The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. D

Question 4

Use the following to answer questions .
Exhibit: The Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

Accepted Answer

A)  The economy depicted in the figure experiences an inflationary gap = Y2 -Yp. 
B)  The economy depicted in the figure experiences an inflationary gap = Y1 -Yp. 
C)  The economy depicted in the figure experiences an inflationary gap = Y1-Y2. 
D)  The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium. 
A)  The economy depicted in the figure experiences an inflationary gap = Y2 -Yp. 
B)  The economy depicted in the figure experiences an inflationary gap = Y1 -Yp. 
C)  The economy depicted in the figure experiences an inflationary gap = Y1-Y2. 
D)  The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.

Question 5

All of the following are held constant along a short-run aggregate supply curve except

Accepted Answer

A)  factor prices. 
B)  output prices. 
C)  nominal wages. 
D)  capital stock. 
A)  factor prices. 
B)  output prices. 
C)  nominal wages. 
D)  capital stock.

Question 6

Suppose that product prices start rising but nominal wages do not. In that case,

Accepted Answer

A)  real wages will fall and firms will want to produce more because doing so will be profitable. 
B)  real wages will rise and firms will want to produce more because doing so will be profitable. 
C)  there will be a surplus of goods and services produced. 
D)  there will be a shortage of goods and services produced. 
A)  real wages will fall and firms will want to produce more because doing so will be profitable. 
B)  real wages will rise and firms will want to produce more because doing so will be profitable. 
C)  there will be a surplus of goods and services produced. 
D)  there will be a shortage of goods and services produced.

Question 7

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Accepted Answer

A)  real GDP only. 
B)  the price level only. 
C)  real GDP and the price level. 
D)  potential output. 
A)  real GDP only. 
B)  the price level only. 
C)  real GDP and the price level. 
D)  potential output.

Question 8

Suppose investment rises by $50 billion at each price level. If the value of the multiplier is 1.5, what is the amount of change in real GDP demanded at each price level?

Accepted Answer

A)  $50 billion 
B)  $75 billion 
C)  $125 billion 
D)  $150 billion 
A)  $50 billion 
B)  $75 billion 
C)  $125 billion 
D)  $150 billion

Question 9

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) Suppose the economy is initially in short-run equilibrium at point K. If the policy-makers adopt a nonintervention policy, over time,
I. real wages will fall as long as unemployment remains above the natural rate.
II. lower nominal wages will result in a gradual shift from SRAS2 to SRAS1.
III. long-run equilibrium will be established at YP and Ph.

Accepted Answer

A)  I, II, and III 
B)  I and II only 
C)  II and III only 
D)  III only 
A)  I, II, and III 
B)  I and II only 
C)  II and III only 
D)  III only

Question 10

Use the following to answer questions .
Exhibit: Aggregate Demand  
-(Exhibit: Aggregate Demand) A movement from point B to point E on could be due to

Accepted Answer

A)  an increase in consumer confidence. 
B)  an increase in the market interest rate. 
C)  an increase in personal income taxes. 
D)  a decrease in transfer payments. 
A)  an increase in consumer confidence. 
B)  an increase in the market interest rate. 
C)  an increase in personal income taxes. 
D)  a decrease in transfer payments.

Question 11

Long-run aggregate supply corresponds to the level of potential output.

Accepted Answer

A) True 
 B)False

Question 12

All the following explain price stickiness except

Accepted Answer

A)  firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent. 
B)  the more firms produce, the lower the average cost of production. Therefore, firms are willing to not raise prices as long as they can sell more. 
C)  firms may be concerned that consumers may be angered by price increases. 
D)  firms may be concerned that their rivals may not match their price increases. 
A)  firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent. 
B)  the more firms produce, the lower the average cost of production. Therefore, firms are willing to not raise prices as long as they can sell more. 
C)  firms may be concerned that consumers may be angered by price increases. 
D)  firms may be concerned that their rivals may not match their price increases.

Question 13

Use the following to answer questions .
Exhibit: The Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

Accepted Answer

A)  Price level = P1; real GDP = Yp 
B)  Price level = P1; real GDP = Y1 
C)  Price level = P2; real GDP = Y2 
D)  Price level = P3; real GDP = Yp 
A)  Price level = P1; real GDP = Yp 
B)  Price level = P1; real GDP = Y1 
C)  Price level = P2; real GDP = Y2 
D)  Price level = P3; real GDP = Yp

Question 14

In the short run, all prices are flexible.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD2. What happens in the new short run?

Accepted Answer

A)  Firms increase output because product prices rise while real wage falls. 
B)  Firms increase output because product prices and real wage rise. 
C)  Firms will have to pay higher nominal wages and employ more workers to supply the increased output. 
D)  The price level increases to Pb, real wages, nominal wages, and employment increase. 
A)  Firms increase output because product prices rise while real wage falls. 
B)  Firms increase output because product prices and real wage rise. 
C)  Firms will have to pay higher nominal wages and employ more workers to supply the increased output. 
D)  The price level increases to Pb, real wages, nominal wages, and employment increase.

Question 16

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve?

Accepted Answer

A)  There will be movement to the left, along the aggregate supply curve. 
B)  The aggregate supply curve will shift to the left. 
C)  There will be movement to the right, along the aggregate supply curve. 
D)  The aggregate supply curve will shift to the right. 
A)  There will be movement to the left, along the aggregate supply curve. 
B)  The aggregate supply curve will shift to the left. 
C)  There will be movement to the right, along the aggregate supply curve. 
D)  The aggregate supply curve will shift to the right.

Question 17

Which of the following will increase the aggregate quantity of output supplied?

Accepted Answer

A)  An increase in input prices 
B)  An increase in the average price level 
C)  A technological advancement 
D)  An increase in net exports 
A)  An increase in input prices 
B)  An increase in the average price level 
C)  A technological advancement 
D)  An increase in net exports

Question 18

According to the international trade effect, holding everything else unchanged,

Accepted Answer

A)  an increase in net exports shifts the aggregate demand curve to the right. 
B)  an increase in the domestic price level reduces net exports leading to a movement along the aggregate demand curve. 
C)  an increase in the exchange rate shifts the aggregate demand curve to the right. 
D)  an increase in the price level of foreign goods reduces imports leading to a movement along the domestic economy's aggregate demand curve. 
A)  an increase in net exports shifts the aggregate demand curve to the right. 
B)  an increase in the domestic price level reduces net exports leading to a movement along the aggregate demand curve. 
C)  an increase in the exchange rate shifts the aggregate demand curve to the right. 
D)  an increase in the price level of foreign goods reduces imports leading to a movement along the domestic economy's aggregate demand curve.

Question 19

Use the following to answer questions .
Exhibit: Short-run Aggregate Supply  
-(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. As a result of this,

Accepted Answer

A)  real GDP is temporarily above potential output. 
B)  the economy's potential output increases to Y2. 
C)  the economy moves to a new long-run equilibrium at point B. 
D)  there is some cyclical unemployment. 
A)  real GDP is temporarily above potential output. 
B)  the economy's potential output increases to Y2. 
C)  the economy moves to a new long-run equilibrium at point B. 
D)  there is some cyclical unemployment.

Question 20

The short run in macroeconomics is a period in which wages and some other prices are sticky.

Accepted Answer

A) True 
 B)False

All other things unchanged, an increase in personal income tax rates will

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

Use the following to answer questions . Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

All of the following are held constant along a short-run aggregate supply curve except

Suppose that product prices start rising but nominal wages do not. In that case,

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Suppose investment rises by $50 billion at each price level. If the value of the multiplier is 1.5, what is the amount of change in real GDP demanded at each price level?

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) A movement from point B to point E on could be due to

Long-run aggregate supply corresponds to the level of potential output.

All the following explain price stickiness except

Use the following to answer questions . Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

In the short run, all prices are flexible.

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve?

Which of the following will increase the aggregate quantity of output supplied?

According to the international trade effect, holding everything else unchanged,

Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. As a result of this,

The short run in macroeconomics is a period in which wages and some other prices are sticky.

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

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Exam 7: Aggregate Demand and Aggregate Supply

All other things unchanged, an increase in personal income tax rates will

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

Use the following to answer questions . Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

All of the following are held constant along a short-run aggregate supply curve except

Suppose that product prices start rising but nominal wages do not. In that case,

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Suppose investment rises by $50 billion at each price level. If the value of the multiplier is 1.5, what is the amount of change in real GDP demanded at each price level?

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) A movement from point B to point E on could be due to

Long-run aggregate supply corresponds to the level of potential output.

All the following explain price stickiness except

Use the following to answer questions . Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

In the short run, all prices are flexible.

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve?

Which of the following will increase the aggregate quantity of output supplied?

According to the international trade effect, holding everything else unchanged,

Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. As a result of this,

The short run in macroeconomics is a period in which wages and some other prices are sticky.

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters