Question 1

A leftward shift in the aggregate demand (AD)curve could result from a rise in

Accepted Answer

A) autonomous exports. 
B) autonomous government purchases. 
C) government transfer payments to households. 
D) desired investment. 
E) autonomous desired savings. 
A) autonomous exports. 
B) autonomous government purchases. 
C) government transfer payments to households. 
D) desired investment. 
E) autonomous desired savings. E

Question 2

Other things being equal,a rise in the domestic price level

Accepted Answer

A) causes a decrease in real saving. 
B) lowers the real value of all assets denominated in money units. 
C) makes domestic goods more attractive to foreigners. 
D) makes foreign goods less attractive to domestic residents. 
E) raises the real burden of repaying a fixed money value debt. 
A) causes a decrease in real saving. 
B) lowers the real value of all assets denominated in money units. 
C) makes domestic goods more attractive to foreigners. 
D) makes foreign goods less attractive to domestic residents. 
E) raises the real burden of repaying a fixed money value debt. B

Question 3

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.1.Economy B has a marginal propensity to consume of 0.6,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is a decrease in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

Accepted Answer

A) The AD curve shifts farther to the left in Economy A than Economy B. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy B. 
A) The AD curve shifts farther to the left in Economy A than Economy B. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy B. A

Question 4

Consider the basic AD/AS macro model.The simple multiplier is reflected by the

Accepted Answer

A) horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure. 
B) downward movement along the AD curve in response to a change in autonomous expenditure. 
C) size of the rightward shift of the AD curve in response to a change in autonomous expenditure. 
D) upward movement along the AD curve in response to a change in autonomous expenditure. 
E) size of the leftward shift of the AD curve in response to a rise in autonomous expenditure. 
A) horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure. 
B) downward movement along the AD curve in response to a change in autonomous expenditure. 
C) size of the rightward shift of the AD curve in response to a change in autonomous expenditure. 
D) upward movement along the AD curve in response to a change in autonomous expenditure. 
E) size of the leftward shift of the AD curve in response to a rise in autonomous expenditure.

Question 5

Consider the AD/AS model.Suppose there is an increase in autonomous desired consumption at a given price level.The result is

Accepted Answer

A) the AE curve shifts downward and the AD curve shifts to the left. 
B) the AE curve shifts downward and the AD curve shifts to the right. 
C) the AE curve shifts upward and the AD curve shifts to the left. 
D) the AE curve shifts upward and the AD curve shifts to the right. 
E) no change in either the AE or the AD curve. 
A) the AE curve shifts downward and the AD curve shifts to the left. 
B) the AE curve shifts downward and the AD curve shifts to the right. 
C) the AE curve shifts upward and the AD curve shifts to the left. 
D) the AE curve shifts upward and the AD curve shifts to the right. 
E) no change in either the AE or the AD curve.

Question 6

Other things being equal,a fall in the domestic price level leads to a rise in private -sector wealth and thus

Accepted Answer

A) an increase in the average propensity to save. 
B) an increase in autonomous desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift in net exports. 
E) domestic goods appearing less attractive to foreigners. 
A) an increase in the average propensity to save. 
B) an increase in autonomous desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift in net exports. 
E) domestic goods appearing less attractive to foreigners.

Question 7

If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand increases,we expect the AE function to shift to a

Accepted Answer

A) higher level and stay there. 
B) higher level,but then shift part of the way down to its original position as the price level rises. 
C) higher level but then return to its original position as the price level rises. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level rises. 
A) higher level and stay there. 
B) higher level,but then shift part of the way down to its original position as the price level rises. 
C) higher level but then return to its original position as the price level rises. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level rises.

Question 8

The economyʹs aggregate supply (AS)curve is assumed to slope upward because

Accepted Answer

A) inputs become more expensive at higher levels of output. 
B) inputs become less expensive at higher levels of output. 
C) firmsʹ unit costs rise as output increases. 
D) firmsʹ unit costs fall as output increases. 
E) aggregate demand increases at higher levels of national income. 
A) inputs become more expensive at higher levels of output. 
B) inputs become less expensive at higher levels of output. 
C) firmsʹ unit costs rise as output increases. 
D) firmsʹ unit costs fall as output increases. 
E) aggregate demand increases at higher levels of national income.

Question 9

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly.

Accepted Answer

A) equilibrium output; unit costs 
B) profit-maximizing output; total costs 
C) capacity; unit costs 
D) equilibrium output; total costs 
E) equilibrium output; average costs 
A) equilibrium output; unit costs 
B) profit-maximizing output; total costs 
C) capacity; unit costs 
D) equilibrium output; total costs 
E) equilibrium output; average costs

Question 10

If the economyʹs AS curve is very steep and there is a negative aggregate demand shock,the result will be

Accepted Answer

A) an increase in the price level and a decrease in real national income. 
B) an increase in both the price level and real national income. 
C) a decrease in the price level with almost no change in real national income. 
D) a decrease in the price level and an increase in real national income. 
E) no change in either price level or output. 
A) an increase in the price level and a decrease in real national income. 
B) an increase in both the price level and real national income. 
C) a decrease in the price level with almost no change in real national income. 
D) a decrease in the price level and an increase in real national income. 
E) no change in either price level or output.

Question 11

Consider the AD/AS macro model.Suppose there is an increase in aggregate demand and,simultaneously,a decrease in aggregate supply.The result will be a

Accepted Answer

A) rise in real GDP but price level changes will be indeterminate. 
B) rise in real GDP and a rise in the price level. 
C) rise in real GDP and a fall in the price level. 
D) an indeterminate change in real GDP and a rise in the price level. 
E) an indeterminate change in real GDP and a fall in the price level. 
A) rise in real GDP but price level changes will be indeterminate. 
B) rise in real GDP and a rise in the price level. 
C) rise in real GDP and a fall in the price level. 
D) an indeterminate change in real GDP and a rise in the price level. 
E) an indeterminate change in real GDP and a fall in the price level.

Question 12

Other things being equal, a higher marginal propensity to spend will lead to a ________ AD curve.

Accepted Answer

A) flatter 
B) steeper 
C) rightward shift of the 
D) leftward shift of the 
A) flatter 
B) steeper 
C) rightward shift of the 
D) leftward shift of the

Question 13

Other things being equal,the economyʹs AS curve will shift downward if there is

Accepted Answer

A) a decrease in labour productivity. 
B) a decrease in the cost of capital inputs. 
C) a decrease in the price level. 
D) an increase in the price level. 
E) an increase in nominal wages. 
A) a decrease in labour productivity. 
B) a decrease in the cost of capital inputs. 
C) a decrease in the price level. 
D) an increase in the price level. 
E) an increase in nominal wages.

Question 14

The AD curve relates the price level to which of the following?

Accepted Answer

A) desired aggregate expenditure 
B) desired consumption 
C) the level of real GDP where desired AE equals actual national income 
D) the level of nominal GDP where desired AE equals actual national income 
E) equilibrium savings and wealth. 
A) desired aggregate expenditure 
B) desired consumption 
C) the level of real GDP where desired AE equals actual national income 
D) the level of nominal GDP where desired AE equals actual national income 
E) equilibrium savings and wealth.

Question 15

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

Accepted Answer

A) The AD curve shifts farther to the left in Economy B than Economy A. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy A. 
A) The AD curve shifts farther to the left in Economy B than Economy A. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy A.

Question 16

Consider the relationship between the AE curve and the AD curve.A decline in the amount of desired net exports at each level of national income

Accepted Answer

A) shifts the AD curve to the right. 
B) shifts the AD curve to the left. 
C) causes a movement up along the AD curve. 
D) causes a movement down along the AD curve. 
E) causes an upward shift of the AE curve but no movement of the AD curve. 
A) shifts the AD curve to the right. 
B) shifts the AD curve to the left. 
C) causes a movement up along the AD curve. 
D) causes a movement down along the AD curve. 
E) causes an upward shift of the AE curve but no movement of the AD curve.

Question 17

Which of the following events would cause the AE function to shift upwards in a parallel way?

Accepted Answer

A) an increase in the MPC 
B) a decrease in the net tax rate 
C) a decrease in the business confidence of firms 
D) a decrease in foreign income 
E) a decrease in the aggregate price level 
A) an increase in the MPC 
B) a decrease in the net tax rate 
C) a decrease in the business confidence of firms 
D) a decrease in foreign income 
E) a decrease in the aggregate price level

Question 18

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

Accepted Answer

A) in the same direction. 
B) in the opposite direction. 
C) by the same amount in the same direction. 
D) by the same amount in the opposite direction. 
E) by a lesser amount in either direction. 
A) in the same direction. 
B) in the opposite direction. 
C) by the same amount in the same direction. 
D) by the same amount in the opposite direction. 
E) by a lesser amount in either direction.

Question 19

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?

Accepted Answer

A) the price level on the vertical axis and MPC on the horizontal axis 
B) national income on the vertical axis and total desired consumption on the horizontal axis 
C) the price level on the vertical axis and real GDP on the horizontal axis 
D) national income on the vertical axis and marginal cost on the horizontal axis 
E) the price level on the vertical axis and real disposable income on the horizontal axis 
A) the price level on the vertical axis and MPC on the horizontal axis 
B) national income on the vertical axis and total desired consumption on the horizontal axis 
C) the price level on the vertical axis and real GDP on the horizontal axis 
D) national income on the vertical axis and marginal cost on the horizontal axis 
E) the price level on the vertical axis and real disposable income on the horizontal axis

Question 20

In the basic AD/AS model,the effect of an aggregate demand shock is divided between a change in output and a change in the price level.How the effect is divided depends on the

Accepted Answer

A) amount of inflation in the economy. 
B) position of the AE curve. 
C) size of the simple multiplier. 
D) slope of the AD curve. 
E) slope of the AS curve. 
A) amount of inflation in the economy. 
B) position of the AE curve. 
C) size of the simple multiplier. 
D) slope of the AD curve. 
E) slope of the AS curve.

Exam 23: Output and Prices in the Short Run

A leftward shift in the aggregate demand (AD)curve could result from a rise in

Other things being equal,a rise in the domestic price level

Consider the basic AD/AS macro model.The simple multiplier is reflected by the

Consider the AD/AS model.Suppose there is an increase in autonomous desired consumption at a given price level.The result is

Other things being equal,a fall in the domestic price level leads to a rise in private -sector wealth and thus

If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand increases,we expect the AE function to shift to a

The economyʹs aggregate supply (AS)curve is assumed to slope upward because

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly.

If the economyʹs AS curve is very steep and there is a negative aggregate demand shock,the result will be

Consider the AD/AS macro model.Suppose there is an increase in aggregate demand and,simultaneously,a decrease in aggregate supply.The result will be a

Other things being equal, a higher marginal propensity to spend will lead to a ________ AD curve.

Other things being equal,the economyʹs AS curve will shift downward if there is

The AD curve relates the price level to which of the following?

Consider the relationship between the AE curve and the AD curve.A decline in the amount of desired net exports at each level of national income

Which of the following events would cause the AE function to shift upwards in a parallel way?

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?

In the basic AD/AS model,the effect of an aggregate demand shock is divided between a change in output and a change in the price level.How the effect is divided depends on the

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The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above and are rising rapidly.