Question 1

The aggregate demand curve shifts when the quantity of real GDP demanded at every price level changes.

Accepted Answer

A) True 
 B)False

Question 2

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 the stock market crashes, significantly reducing household wealth. In the short-run,

Accepted Answer

A)  the nominal wage rate falls. 
B)  unemployment is above its natural level. 
C)  there will be pressure on prices to rise. 
D)  the short-run aggregate supply curve shifts to the left as firms cut production. 
A)  the nominal wage rate falls. 
B)  unemployment is above its natural level. 
C)  there will be pressure on prices to rise. 
D)  the short-run aggregate supply curve shifts to the left as firms cut production.

Question 3

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 at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

Accepted Answer

A)  Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. 
B)  Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H. 
C)  In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. 
D)  Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed. 
A)  Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. 
B)  Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H. 
C)  In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. 
D)  Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed.

Question 4

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 5

The long-run aggregate supply curve is vertical at

Accepted Answer

A)  potential output. 
B)  the actual level of real output. 
C)  the actual level of nominal output. 
D)  100% employment of the labor force. 
A)  potential output. 
B)  the actual level of real output. 
C)  the actual level of nominal output. 
D)  100% employment of the labor force.

Question 6

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels) The table shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. What kind of gap, if any, exists and what is the size of the gap?

Accepted Answer

A)  No gap exists because the economy is in equilibrium. 
B)  There is a recessionary gap of $0.8 trillion. 
C)  There is a recessionary gap of $0.2 trillion. 
D)  There is an inflationary gap of $1 trillion. 
A)  No gap exists because the economy is in equilibrium. 
B)  There is a recessionary gap of $0.8 trillion. 
C)  There is a recessionary gap of $0.2 trillion. 
D)  There is an inflationary gap of $1 trillion.

Question 7

Use the following to answer questions .
Exhibit: Long-run Equilibrium  
-(Exhibit: Long-run Equilibrium) If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

Accepted Answer

A)  $6,034 billion 
B)  $8,120 billion 
C)  $9,120 billion 
D)  cannot be determined from the information given 
A)  $6,034 billion 
B)  $8,120 billion 
C)  $9,120 billion 
D)  cannot be determined from the information given

Question 8

In the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to

Accepted Answer

A)  increase and potential output to increase. 
B)  decrease and potential output to decrease. 
C)  increase and potential output to remain stable. 
D)  decrease and potential output to remain stable. 
A)  increase and potential output to increase. 
B)  decrease and potential output to decrease. 
C)  increase and potential output to remain stable. 
D)  decrease and potential output to remain stable.

Question 9

In the long run, the price level is determined by

Accepted Answer

A)  aggregate demand. 
B)  aggregate supply. 
C)  the government. 
D)  consumers and firms. 
A)  aggregate demand. 
B)  aggregate supply. 
C)  the government. 
D)  consumers and firms.

Question 10

Aggregate demand is the total value of real GDP that

Accepted Answer

A)  all sectors of the economy are willing to purchase at various average price levels, all other things unchanged. 
B)  all sectors of the economy are willing to sell at various average price levels, all other things unchanged. 
C)  consumers are willing to purchase at various average price levels, all other things unchanged. 
D)  consumers are willing to purchase at various national income levels, all other things unchanged. 
A)  all sectors of the economy are willing to purchase at various average price levels, all other things unchanged. 
B)  all sectors of the economy are willing to sell at various average price levels, all other things unchanged. 
C)  consumers are willing to purchase at various average price levels, all other things unchanged. 
D)  consumers are willing to purchase at various national income levels, all other things unchanged.

Question 11

What is the difference between the short run and the long run in macroeconomics? Why is this distinction critical in the analysis of aggregate demand and supply?

Accepted Answer

In macroeconomics, the short run and the

Question 12

To eliminate a recessionary gap, policy-makers may pursue

Accepted Answer

A)  an expansionary policy that increases aggregate demand. 
B)  a contractionary policy that increases aggregate demand. 
C)  a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand. 
D)  an intervention policy that decreases aggregate supply and increases aggregate demand. 
A)  an expansionary policy that increases aggregate demand. 
B)  a contractionary policy that increases aggregate demand. 
C)  a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand. 
D)  an intervention policy that decreases aggregate supply and increases aggregate demand.

Question 13

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 in short-run equilibrium at B. A shift from AD1 to AD2 could have been caused by all of the following except

Accepted Answer

A)  an increase in consumer optimism. 
B)  economic prosperity in foreign economies. 
C)  a personal income tax cut. 
D)  an increase in the price level from Pa to Pb. 
A)  an increase in consumer optimism. 
B)  economic prosperity in foreign economies. 
C)  a personal income tax cut. 
D)  an increase in the price level from Pa to Pb.

Question 14

Public policy to eliminate a recessionary gap could involve an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 15

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Accepted Answer

A)  It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. 
B)  It refers to the effect of interest rates on borrowing which in turn affects consumption spending. 
C)  It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. 
D)  It refers to the shifts in aggregate demand when interest rates change. 
A)  It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. 
B)  It refers to the effect of interest rates on borrowing which in turn affects consumption spending. 
C)  It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. 
D)  It refers to the shifts in aggregate demand when interest rates change.

Question 16

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Accepted Answer

A)  some firms will immediately pass the higher prices to consumers. 
B)  because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales. 
C)  firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales. 
D)  consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand. 
A)  some firms will immediately pass the higher prices to consumers. 
B)  because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales. 
C)  firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales. 
D)  consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand.

Question 17

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

Accepted Answer

A)  the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves. 
B)  the short-run aggregate supply and the long-run aggregate supply curves. 
C)  the aggregate demand and the short-run aggregate supply curves. 
D)  the aggregate demand and the long-run aggregate supply curves. 
A)  the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves. 
B)  the short-run aggregate supply and the long-run aggregate supply curves. 
C)  the aggregate demand and the short-run aggregate supply curves. 
D)  the aggregate demand and the long-run aggregate supply curves.

Question 18

Explain and discuss the difference between a movement along an aggregate demand curve and a shift of the aggregate demand curve. Illustrate your answer with a graph.

Accepted Answer

A movement along an aggregate demand cur

Question 19

What are the four sources of aggregate demand?

Accepted Answer

A)  Consumption, private investment, taxes, and expenditures 
B)  Consumption, private investment, wage increases, and government expenditures 
C)  Consumption, private investment, expenditures, and net exports 
D)  Consumption, private investment, government purchases, and net exports 
A)  Consumption, private investment, taxes, and expenditures 
B)  Consumption, private investment, wage increases, and government expenditures 
C)  Consumption, private investment, expenditures, and net exports 
D)  Consumption, private investment, government purchases, and net exports

Question 20

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

Accepted Answer

A)  5% 
B)  10% 
C)  30% 
D)  50% 
A)  5% 
B)  10% 
C)  30% 
D)  50%

The aggregate demand curve shifts when the quantity of real GDP demanded at every price level changes.

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 the stock market crashes, significantly reducing household wealth. In the short-run,

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

The long-run aggregate supply curve is vertical at

Use the following to answer questions . Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

In the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to

In the long run, the price level is determined by

Aggregate demand is the total value of real GDP that

What is the difference between the short run and the long run in macroeconomics? Why is this distinction critical in the analysis of aggregate demand and supply?

To eliminate a recessionary gap, policy-makers may pursue

Public policy to eliminate a recessionary gap could involve an increase in taxes.

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

Explain and discuss the difference between a movement along an aggregate demand curve and a shift of the aggregate demand curve. Illustrate your answer with a graph.

What are the four sources of aggregate demand?

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

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

Exam 7: Aggregate Demand and Aggregate Supply

The aggregate demand curve shifts when the quantity of real GDP demanded at every price level changes.

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 the stock market crashes, significantly reducing household wealth. In the short-run,

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

The long-run aggregate supply curve is vertical at

Use the following to answer questions . Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

In the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to

In the long run, the price level is determined by

Aggregate demand is the total value of real GDP that

What is the difference between the short run and the long run in macroeconomics? Why is this distinction critical in the analysis of aggregate demand and supply?

To eliminate a recessionary gap, policy-makers may pursue

Public policy to eliminate a recessionary gap could involve an increase in taxes.

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

Explain and discuss the difference between a movement along an aggregate demand curve and a shift of the aggregate demand curve. Illustrate your answer with a graph.

What are the four sources of aggregate demand?

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

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