Question 1

Over the horizontal range of the economyʹs AS curve (assuming such a range exists),a rightward shift of the AD curve will result in

Accepted Answer

A) an increase in prices and no change in real GDP. 
B) an increase in real GDP and no change in prices. 
C) an increase in both real GDP and prices. 
D) a decrease in both real GDP and prices. 
E) a decrease in real GDP but no change in prices. 
A) an increase in prices and no change in real GDP. 
B) an increase in real GDP and no change in prices. 
C) an increase in both real GDP and prices. 
D) a decrease in both real GDP and prices. 
E) a decrease in real GDP but no change in prices.

Question 2

Consider the following news headline: ʺInformation technology costs for Canadian firms continue to drop.ʺ Choose the statement below that best describes the likely macroeconomic effect.

Accepted Answer

A) the AD curve shifts to the right; the price level rises and real GDP rises 
B) the AD curve shifts to the left; the price level falls and real GDP falls 
C) the AS curve shifts to the left; the price level rises and real GDP falls 
D) the AS curve shifts to the right; the price level falls and real GDP rises 
E) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises 
A) the AD curve shifts to the right; the price level rises and real GDP rises 
B) the AD curve shifts to the left; the price level falls and real GDP falls 
C) the AS curve shifts to the left; the price level rises and real GDP falls 
D) the AS curve shifts to the right; the price level falls and real GDP rises 
E) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises

Question 3

The economyʹs AS curve will shift upward in the short run if there is

Accepted Answer

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

Question 4

Other things being equal, when the price level rises, the real value of money holdings ________; when the domestic price level falls, the real value of money holdings ________.

Accepted Answer

A) rises; falls 
B) falls; is not affected 
C) falls; rises 
D) is not affected; falls 
E) is not affected; rises 
A) rises; falls 
B) falls; is not affected 
C) falls; rises 
D) is not affected; falls 
E) is not affected; rises

Question 5

Which of the following would cause a positive aggregate demand shock,but leave the aggregate supply curve unaffected?

Accepted Answer

A) A free trade agreement between Canada and Europe that leads Canadian businesses to increase investment expenditures. 
B) A severe drought lasting for six months that destroys agricultural and forestry production. 
C) A medical report confirming that improved health for Canadian workers caused fewer lost days of production. 
D) An improvement in the computer literacy of workers. 
E) A substantial increase in world oil prices. 
A) A free trade agreement between Canada and Europe that leads Canadian businesses to increase investment expenditures. 
B) A severe drought lasting for six months that destroys agricultural and forestry production. 
C) A medical report confirming that improved health for Canadian workers caused fewer lost days of production. 
D) An improvement in the computer literacy of workers. 
E) A substantial increase in world oil prices.

Question 6

Other things being equal,the economyʹs AS curve will shift upward in the short run if there is

Accepted Answer

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

Question 7

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?

Accepted Answer

A) an increase in the business confidence of firms 
B) a reduction in government purchases 
C) an decrease in the MPC 
D) a decrease in the price level 
E) an increase in the price level 
A) an increase in the business confidence of firms 
B) a reduction in government purchases 
C) an decrease in the MPC 
D) a decrease in the price level 
E) an increase in the price level

Question 8

Other things being equal,when the domestic price level falls exogenously,

Accepted Answer

A) Canadian goods become more expensive relative to foreign goods. 
B) the net export function shifts upward. 
C) the aggregate expenditure function shifts downward. 
D) imports of foreign goods rise. 
E) the net export function shifts downward. 
A) Canadian goods become more expensive relative to foreign goods. 
B) the net export function shifts upward. 
C) the aggregate expenditure function shifts downward. 
D) imports of foreign goods rise. 
E) the net export function shifts downward.

Question 9

All points on an economyʹs AD curve

Accepted Answer

A) correspond to a particular point on industry demand curves for a particular product. 
B) relate a particular price level to the total demand for output at that price level. 
C) show only changes in relative prices and quantities. 
D) show the direct relationship between the price level and net exports. 
E) show the direct relationship between the price level and the demand for consumer goods. 
A) correspond to a particular point on industry demand curves for a particular product. 
B) relate a particular price level to the total demand for output at that price level. 
C) show only changes in relative prices and quantities. 
D) show the direct relationship between the price level and net exports. 
E) show the direct relationship between the price level and the demand for consumer goods.

Question 10

If the economyʹs AS curve is upward sloping,a positive aggregate demand shock will result in

Accepted Answer

A) an increase in prices but not output. 
B) an increase in output but not prices. 
C) an increase in both output and prices. 
D) a decrease in both output and prices. 
E) a decrease in output and an increase in prices. 
A) an increase in prices but not output. 
B) an increase in output but not prices. 
C) an increase in both output and prices. 
D) a decrease in both output and prices. 
E) a decrease in output and an increase in prices.

Question 11

FIGURE 23-1
 
-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose there is an exogenous rise in the price level to P1.Which of the following statements describes the likely macroeconomic effects?

Accepted Answer

A) The AE curve shifts to AE1,a new equilibrium is established at point U,and the AD curve shifts from AD0 to AD1,and equilibrium from point B to point D. 
B) The AE curve shifts to AE2,a new equilibrium is established at point W,and the economy moves from point B to point C along AD0. 
C) The AE curve shifts to AE1,a new equilibrium is established at point U,and the economy moves from point B to point A along AD0. 
D) The AE curve shifts to AE2,a new equilibrium is established at point W,and the AD curve shifts from AD0 to AD1,and equilibrium moves from point B to point D. 
A) The AE curve shifts to AE1,a new equilibrium is established at point U,and the AD curve shifts from AD0 to AD1,and equilibrium from point B to point D. 
B) The AE curve shifts to AE2,a new equilibrium is established at point W,and the economy moves from point B to point C along AD0. 
C) The AE curve shifts to AE1,a new equilibrium is established at point U,and the economy moves from point B to point A along AD0. 
D) The AE curve shifts to AE2,a new equilibrium is established at point W,and the AD curve shifts from AD0 to AD1,and equilibrium moves from point B to point D.

Question 12

Consider a simple macro model with demand-determined output.Other things being equal,the price level and desired aggregate expenditure are related to each other

Accepted Answer

A) positively. 
B) proportionally. 
C) progressively. 
D) exponentially. 
E) negatively. 
A) positively. 
B) proportionally. 
C) progressively. 
D) exponentially. 
E) negatively.

Question 13

Consider the basic AD/AS model with an upward-sloping AS curve.A positive aggregate demand shock will initially cause

Accepted Answer

A) a decrease in the price level. 
B) the equilibrium point to move rightward along the AS curve. 
C) a movement along the AD curve to the right. 
D) a shift to the right in the AS curve. 
E) the unemployment rate to remain constant. 
A) a decrease in the price level. 
B) the equilibrium point to move rightward along the AS curve. 
C) a movement along the AD curve to the right. 
D) a shift to the right in the AS curve. 
E) the unemployment rate to remain constant.

Question 14

Which of the following will cause a negative aggregate demand shock?

Accepted Answer

A) an increase in the price of raw materials 
B) a decrease in the domestic price level 
C) an increase in the domestic price level 
D) an increase in government expenditures 
E) an increase in tax rates 
A) an increase in the price of raw materials 
B) a decrease in the domestic price level 
C) an increase in the domestic price level 
D) an increase in government expenditures 
E) an increase in tax rates

Question 15

Other things being equal, a closed economy will have a ________ marginal propensity to spend and thus a________ AD curve compared to an open economy with foreign trade.

Accepted Answer

A) lower; flatter 
B) higher; flatter 
C) higher; steeper 
D) lower; rightward shift of the 
E) lower; leftward shift of the 
A) lower; flatter 
B) higher; flatter 
C) higher; steeper 
D) lower; rightward shift of the 
E) lower; leftward shift of the

Question 16

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

Accepted Answer

A) AD curve shifts left. 
B) AS curve shifts upward. 
C) output gap falls. 
D) output gap increases. 
E) AS curve shifts downward. 
A) AD curve shifts left. 
B) AS curve shifts upward. 
C) output gap falls. 
D) output gap increases. 
E) AS curve shifts downward.

Question 17

FIGURE 23-1
 
-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE1 and we move to a new equilibrium level of GDP at Y1 and point A on AD0.A possible cause of this change in equilibrium is

Accepted Answer

A) an exogenous rise in the price level. 
B) a decrease in desired investment. 
C) a decrease in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases. 
A) an exogenous rise in the price level. 
B) a decrease in desired investment. 
C) a decrease in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases.

Question 18

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

Accepted Answer

A) a person with a 25-year home mortgage 
B) a person with cash under the mattress 
C) a person with deposits in a bank savings account 
D) a person with a government bond that promises to pay the holder $1000,5 years hence 
E) a person with a corporate bond that promises to repay the face value of the bond in the future 
A) a person with a 25-year home mortgage 
B) a person with cash under the mattress 
C) a person with deposits in a bank savings account 
D) a person with a government bond that promises to pay the holder $1000,5 years hence 
E) a person with a corporate bond that promises to repay the face value of the bond in the future

Question 19

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sectorʹs wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.

Accepted Answer

A) increase; a decrease; a downward 
B) increase; an increase; a downward 
C) increase; an increase; an upward 
D) reduce; a decrease; a downward 
E) reduce; an increase; an upward 
A) increase; a decrease; a downward 
B) increase; an increase; a downward 
C) increase; an increase; an upward 
D) reduce; a decrease; a downward 
E) reduce; an increase; an upward

Question 20

Consider the basic AD/AS model.Suppose firms are currently producing beyond their normal capacity.A change in AD leads to a relatively

Accepted Answer

A) large change in price level and a large change in real GDP. 
B) large change in price level and a small change in real GDP. 
C) small change in price level and a large change in real GDP. 
D) small change in price level and a small change in real GDP. 
E) no change in both price and output. 
A) large change in price level and a large change in real GDP. 
B) large change in price level and a small change in real GDP. 
C) small change in price level and a large change in real GDP. 
D) small change in price level and a small change in real GDP. 
E) no change in both price and output.

Exam 23: Output and Prices in the Short Run

Over the horizontal range of the economyʹs AS curve (assuming such a range exists),a rightward shift of the AD curve will result in

Consider the following news headline: ʺInformation technology costs for Canadian firms continue to drop.ʺ Choose the statement below that best describes the likely macroeconomic effect.

The economyʹs AS curve will shift upward in the short run if there is

Other things being equal, when the price level rises, the real value of money holdings ________; when the domestic price level falls, the real value of money holdings ________.

Which of the following would cause a positive aggregate demand shock,but leave the aggregate supply curve unaffected?

Other things being equal,the economyʹs AS curve will shift upward in the short run if there is

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?

Other things being equal,when the domestic price level falls exogenously,

All points on an economyʹs AD curve

If the economyʹs AS curve is upward sloping,a positive aggregate demand shock will result in

Consider a simple macro model with demand-determined output.Other things being equal,the price level and desired aggregate expenditure are related to each other

Consider the basic AD/AS model with an upward-sloping AS curve.A positive aggregate demand shock will initially cause

Which of the following will cause a negative aggregate demand shock?

Other things being equal, a closed economy will have a ________ marginal propensity to spend and thus a________ AD curve compared to an open economy with foreign trade.

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will ________ the real value of the private sectorʹs wealth, which leads to ________ in autonomous consumption and thus ________ shift in the AE function.

Consider the basic AD/AS model.Suppose firms are currently producing beyond their normal capacity.A change in AD leads to a relatively

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Filters

Other things being equal, when the price level rises, the real value of money holdings ; when the domestic price level falls, the real value of money holdings .

Other things being equal, a closed economy will have a marginal propensity to spend and thus a AD curve compared to an open economy with foreign trade.

Consider a simple macro-model with demand-determined output. An exogenous increase in the domestic price level will the real value of the private sectorʹs wealth, which leads to in autonomous consumption and thus shift in the AE function.