Question 1

Discuss why the short-run aggregate supply curve is upward sloping unlike the long-run aggregate supply curve which is vertical.

Accepted Answer

The short-run aggregate supply curve is

Question 2

An increase in aggregate demand, all other things unchanged, in the long run will generate

Accepted Answer

A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level. 
A)  an increase in potential output and no change in the price level. 
B)  a decrease in potential output and no change in the price level. 
C)  no change in potential output and an increase in the price level. 
D)  no change in potential output and a decrease in the price level.

Question 3

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. What happens in the short run?

Accepted Answer

A)  There will be an increase in aggregate output demanded and the economy moves from point A to point G. 
B)  Real GDP increases to Y2 and the price level rises to P2. 
C)  Real GDP decreases to Y3 and the price level falls to P3. 
D)  Since the economy is already at its potential output, only the price level will rise to P2. 
A)  There will be an increase in aggregate output demanded and the economy moves from point A to point G. 
B)  Real GDP increases to Y2 and the price level rises to P2. 
C)  Real GDP decreases to Y3 and the price level falls to P3. 
D)  Since the economy is already at its potential output, only the price level will rise to P2.

Question 4

The economy's potential output corresponds to the level of

Accepted Answer

A)  natural employment. 
B)  frictional unemployment. 
C)  structural unemployment. 
D)  cyclical unemployment. 
A)  natural employment. 
B)  frictional unemployment. 
C)  structural unemployment. 
D)  cyclical unemployment.

Question 5

Use the following to answer questions .
Exhibit: Aggregate Demand  
-(Exhibit: Aggregate Demand) What could have caused a movement from point D to point A?

Accepted Answer

A)  An increase in the economy's general price level 
B)  A decrease in investment demand due to lower expected sales 
C)  A decrease in capital gains taxes 
D)  An increase in money supply that lowers interest rate 
A)  An increase in the economy's general price level 
B)  A decrease in investment demand due to lower expected sales 
C)  A decrease in capital gains taxes 
D)  An increase in money supply that lowers interest rate

Question 6

Which of the following occurs if an economy experiences an inflationary gap?
I. Actual real GDP is less than potential output.
II. Actual real GDP is greater than potential output.
III. Unemployment is less than the natural rate.
IV. Unemployment is greater than the natural rate.

Accepted Answer

A)  I and III 
B)  I and IV 
C)  II and III 
D)  II and IV 
A)  I and III 
B)  I and IV 
C)  II and III 
D)  II and IV

Question 7

Use the following to answer questions .
Exhibit: Aggregate Demand  
-(Exhibit: Aggregate Demand) What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?

Accepted Answer

A)  An increase in exports 
B)  An increase in imports 
C)  A decrease in defense spending 
D)  An increase in the domestic price level 
A)  An increase in exports 
B)  An increase in imports 
C)  A decrease in defense spending 
D)  An increase in the domestic price level

Question 8

A change in the aggregate quantities of goods and services demanded at each price level is called a

Accepted Answer

A)  change in aggregate demand. 
B)  change in the aggregate quantity of goods and services demanded. 
C)  determinant of aggregate demand. 
D)  revealed expenditure on aggregate demand. 
A)  change in aggregate demand. 
B)  change in the aggregate quantity of goods and services demanded. 
C)  determinant of aggregate demand. 
D)  revealed expenditure on aggregate demand.

Question 9

The use central bank policies to influence the level of economic activity is called

Accepted Answer

A)  banking and finance policy. 
B)  financial market policy. 
C)  monetary policy. 
D)  congressional policy. 
A)  banking and finance policy. 
B)  financial market policy. 
C)  monetary policy. 
D)  congressional policy.

Question 10

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Accepted Answer

A)  To fund the government spending, more money must be printed. The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. 
B)  The initial change in spending will cause an increase in real GDP and it also becomes income to someone else. As a result, the government's tax revenue increases which in turn allows the government to further increase its spending. 
C)  The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption. 
D)  The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services. The resulting increases in wages and investment demand leads to increased real GDP. 
A)  To fund the government spending, more money must be printed. The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. 
B)  The initial change in spending will cause an increase in real GDP and it also becomes income to someone else. As a result, the government's tax revenue increases which in turn allows the government to further increase its spending. 
C)  The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption. 
D)  The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services. The resulting increases in wages and investment demand leads to increased real GDP.

Question 11

Use the following to answer questions .
Exhibit: Long-run Equilibrium  
-(Exhibit: Long-run Equilibrium) The potential output in this economy is

Accepted Answer

A)  $6,000 billion at a price level of 1.08. 
B)  $7,000 billion at a price level of 1.12. 
C)  $7, 100 billion at a price level of 1.16. 
D)  $7,056 billion at a price level of 1.08. 
A)  $6,000 billion at a price level of 1.08. 
B)  $7,000 billion at a price level of 1.12. 
C)  $7, 100 billion at a price level of 1.16. 
D)  $7,056 billion at a price level of 1.08.

Question 12

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and real GDP in the short run?

Accepted Answer

A)  A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B)  An increase in government transfer payments 
C)  An increase in the cost of a key input such as oil 
D)  A sharp fall in stock market prices 
A)  A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B)  An increase in government transfer payments 
C)  An increase in the cost of a key input such as oil 
D)  A sharp fall in stock market prices

Question 13

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level YK,

Accepted Answer

A)  the economy is not in equilibrium because it operates with an output gap. 
B)  the economy is in short-run equilibrium and it operates with an inflationary gap. 
C)  the economy is in short-run equilibrium and it operates with a recessionary gap. 
D)  the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment. 
A)  the economy is not in equilibrium because it operates with an output gap. 
B)  the economy is in short-run equilibrium and it operates with an inflationary gap. 
C)  the economy is in short-run equilibrium and it operates with a recessionary gap. 
D)  the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment.

Question 14

A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the

Accepted Answer

A)  aggregate demand curve. 
B)  average price level. 
C)  circular flow model. 
D)  GDP curve. 
A)  aggregate demand curve. 
B)  average price level. 
C)  circular flow model. 
D)  GDP curve.

Question 15

In the long run, the output level is determined by

Accepted Answer

A)  aggregate demand. 
B)  long-run aggregate supply. 
C)  the government. 
D)  household income. 
A)  aggregate demand. 
B)  long-run aggregate supply. 
C)  the government. 
D)  household income.

Question 16

Suppose an economy's exports increase and its imports decrease. All other things unchanged, this results in

Accepted Answer

A)  a decrease in net exports which will shift the aggregate demand curve to the right. 
B)  an increase in net exports which will shift the aggregate demand curve to the right. 
C)  a decrease in net exports which will shift the aggregate supply curve to the left. 
D)  an increase in net exports which will shift the aggregate supply curve to the right. 
A)  a decrease in net exports which will shift the aggregate demand curve to the right. 
B)  an increase in net exports which will shift the aggregate demand curve to the right. 
C)  a decrease in net exports which will shift the aggregate supply curve to the left. 
D)  an increase in net exports which will shift the aggregate supply curve to the right.

Question 17

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS1 to SRAS2 could have been caused by all of the following except

Accepted Answer

A)  an increase in the consumer confidence index. 
B)  an increase in payroll tax. 
C)  a rise in health care costs which raises the cost of employing labor. 
D)  terrorist attacks that destroys an economy's infrastructure. 
A)  an increase in the consumer confidence index. 
B)  an increase in payroll tax. 
C)  a rise in health care costs which raises the cost of employing labor. 
D)  terrorist attacks that destroys an economy's infrastructure.

Question 18

Which of the following will increase the short-run aggregate supply?

Accepted Answer

A)  An increase in wages 
B)  A decrease in the price of capital 
C)  An increase in government spending on education 
D)  An increase in consumption spending 
A)  An increase in wages 
B)  A decrease in the price of capital 
C)  An increase in government spending on education 
D)  An increase in consumption spending

Question 19

Suppose households become more future-oriented and decide to save more at each income level. All other things unchanged, this will

Accepted Answer

A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  not affect aggregate but rather aggregate supply because firms will now produce less. 
D)  shift both the aggregate demand curve and the aggregate supply curve to the left. 
A)  shift the aggregate demand curve to the right. 
B)  shift the aggregate demand curve to the left. 
C)  not affect aggregate but rather aggregate supply because firms will now produce less. 
D)  shift both the aggregate demand curve and the aggregate supply curve to the left.

Question 20

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. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

Accepted Answer

A)  A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd. 
B)  A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. 
C)  Both policies would return real GDP to its potential at a price level of Pa. 
D)  Both policies would return real GDP to its potential at a price level of Pd. 
A)  A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd. 
B)  A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. 
C)  Both policies would return real GDP to its potential at a price level of Pa. 
D)  Both policies would return real GDP to its potential at a price level of Pd.

Discuss why the short-run aggregate supply curve is upward sloping unlike the long-run aggregate supply curve which is vertical.

An increase in aggregate demand, all other things unchanged, in the long run will generate

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. What happens in the short run?

The economy's potential output corresponds to the level of

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point D to point A?

Which of the following occurs if an economy experiences an inflationary gap? I. Actual real GDP is less than potential output. II. Actual real GDP is greater than potential output. III. Unemployment is less than the natural rate. IV. Unemployment is greater than the natural rate.

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused the aggregate demand curve to shift to the right from AD₁ to AD₂?

A change in the aggregate quantities of goods and services demanded at each price level is called a

The use central bank policies to influence the level of economic activity is called

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Use the following to answer questions . Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) The potential output in this economy is

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and real GDP in the short run?

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level Y_K,

A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the

In the long run, the output level is determined by

Suppose an economy's exports increase and its imports decrease. All other things unchanged, this results in

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS₁ to SRAS₂ could have been caused by all of the following except

Which of the following will increase the short-run aggregate supply?

Suppose households become more future-oriented and decide to save more at each income level. All other things unchanged, this will

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

Discuss why the short-run aggregate supply curve is upward sloping unlike the long-run aggregate supply curve which is vertical.

An increase in aggregate demand, all other things unchanged, in the long run will generate

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. What happens in the short run?

The economy's potential output corresponds to the level of

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point D to point A?

Which of the following occurs if an economy experiences an inflationary gap? I. Actual real GDP is less than potential output. II. Actual real GDP is greater than potential output. III. Unemployment is less than the natural rate. IV. Unemployment is greater than the natural rate.

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?

A change in the aggregate quantities of goods and services demanded at each price level is called a

The use central bank policies to influence the level of economic activity is called

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Use the following to answer questions . Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) The potential output in this economy is

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and real GDP in the short run?

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level YK,

A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the

In the long run, the output level is determined by

Suppose an economy's exports increase and its imports decrease. All other things unchanged, this results in

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS1 to SRAS2 could have been caused by all of the following except

Which of the following will increase the short-run aggregate supply?

Suppose households become more future-oriented and decide to save more at each income level. All other things unchanged, this will

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

Use the following to answer questions . Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused the aggregate demand curve to shift to the right from AD₁ to AD₂?

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level Y_K,

Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS₁ to SRAS₂ could have been caused by all of the following except