Question 1

Consider the basic AD/AS model in the short run.When there is a change in autonomous desired expenditure,the simple multiplier is equal to the

Accepted Answer

A) product of the horizontal shift of the AD curve times the change in autonomous expenditure. 
B) product of the vertical movement along the AD curve times the change in autonomous expenditure. 
C) ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. 
D) ratio of the vertical movement along the AD curve to the change in autonomous expenditure. 
E) ratio of the vertical shift of the AD curve to the change in autonomous expenditure. 
A) product of the horizontal shift of the AD curve times the change in autonomous expenditure. 
B) product of the vertical movement along the AD curve times the change in autonomous expenditure. 
C) ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. 
D) ratio of the vertical movement along the AD curve to the change in autonomous expenditure. 
E) ratio of the vertical shift of the AD curve to the change in autonomous expenditure.

Question 2

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

Accepted Answer

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

Question 3

Other things being equal,an exogenous rise in the domestic price level will

Accepted Answer

A) have no effect on the level of desired real expenditure. 
B) increase the level of desired real expenditure. 
C) decrease desired real expenditure only if it is accompanied by a change in the current income of households. 
D) decrease desired real expenditure because it will affect the real value of wealth. 
E) cause net exports to rise. 
A) have no effect on the level of desired real expenditure. 
B) increase the level of desired real expenditure. 
C) decrease desired real expenditure only if it is accompanied by a change in the current income of households. 
D) decrease desired real expenditure because it will affect the real value of wealth. 
E) cause net exports to rise.

Question 4

Suppose firms are currently producing output at a level beyond their normal capacity.In this situation,the AS curve will be relatively ________ and a positive AD shock will result in ________.

Accepted Answer

A) steep; an increase in the price level with a small increase in real GDP 
B) flat; an equal increase in the price level and in real GDP 
C) flat; a very small increase in prices but a large increase in real GDP 
D) flat; a very small decrease in the price level and a decrease in real GDP 
E) steep; a decrease in the price level and a very small decrease in real GDP 
A) steep; an increase in the price level with a small increase in real GDP 
B) flat; an equal increase in the price level and in real GDP 
C) flat; a very small increase in prices but a large increase in real GDP 
D) flat; a very small decrease in the price level and a decrease in real GDP 
E) steep; a decrease in the price level and a very small decrease in real GDP

Question 5

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.The corresponding point on the aggregate demand curve is point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) E. 
A) A. 
B) B. 
C) C. 
D) D. 
E) E.

Question 6

Consider the basic AD/AS model.If firmsʹ unit costs remained constant as firms increased their output levels,this would lead to a

Accepted Answer

A) vertical AD curve. 
B) horizontal AD curve. 
C) vertical AS curve. 
D) horizontal AS curve. 
E) horizontal AE curve. 
A) vertical AD curve. 
B) horizontal AD curve. 
C) vertical AS curve. 
D) horizontal AS curve. 
E) horizontal AE curve.

Question 7

The economyʹs AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

Accepted Answer

A) consumer demand for most goods tends to be non -responsive to price when output is low. 
B) consumer demand for most goods tends to be very responsive to price when output is low. 
C) at low levels of output,firms are faced with unused capacity and thus can increase output without significantly increasing their costs. 
D) the price level is constant. 
E) profits are normally high in this section of the AS curve,so firms are willing to expand output. 
A) consumer demand for most goods tends to be non -responsive to price when output is low. 
B) consumer demand for most goods tends to be very responsive to price when output is low. 
C) at low levels of output,firms are faced with unused capacity and thus can increase output without significantly increasing their costs. 
D) the price level is constant. 
E) profits are normally high in this section of the AS curve,so firms are willing to expand output.

Question 8

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) There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. 
B) There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. 
C) There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. 
D) There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. 
E) There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment. 
A) There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. 
B) There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. 
C) There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. 
D) There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. 
E) There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Question 9

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

Accepted Answer

A) downward (to the right),reducing the price level. 
B) downward (to the right)and then return immediately to its original position. 
C) upward (to the left)and then return immediately to its original position. 
D) upward (to the left),increasing the price level. 
E) None of the above; there will no effect on the AS curve. 
A) downward (to the right),reducing the price level. 
B) downward (to the right)and then return immediately to its original position. 
C) upward (to the left)and then return immediately to its original position. 
D) upward (to the left),increasing the price level. 
E) None of the above; there will no effect on the AS curve.

Question 10

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 AE2 and we move to a new equilibrium level of GDP at Y2 and point C on AD0.A possible cause of this change in equilibrium is

Accepted Answer

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

Question 11

Consider the basic AD/AS model.A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium,which in comparison to the original equilibrium,has a price level that is

Accepted Answer

A) higher and a real GDP that is higher. 
B) higher and a real GDP that is lower. 
C) higher and a real GDP that is the same. 
D) lower and a real GDP that is higher. 
E) lower and a real GDP that is lower. 
A) higher and a real GDP that is higher. 
B) higher and a real GDP that is lower. 
C) higher and a real GDP that is the same. 
D) lower and a real GDP that is higher. 
E) lower and a real GDP that is lower.

Question 12

An exogenous fall in the domestic price level causes an increase in real wealth and

Accepted Answer

A) a fall in desired investment. 
B) a rise in desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift of the net export function. 
E) a fall in government purchases. 
A) a fall in desired investment. 
B) a rise in desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift of the net export function. 
E) a fall in government purchases.

Question 13

Consider the nature of macroeconomic equilibrium.If,at a particular price level,aggregate output demanded is less than that supplied by producers,then

Accepted Answer

A) the price level will rise toward its equilibrium value. 
B) the price level will decline toward its equilibrium value. 
C) the aggregate demand curve will shift to the right,re-establishing an equilibrium. 
D) the aggregate supply curve will shift to the left,re-establishing an equilibrium. 
E) the aggregate supply curve will shift to the right,re-establishing an equilibrium. 
A) the price level will rise toward its equilibrium value. 
B) the price level will decline toward its equilibrium value. 
C) the aggregate demand curve will shift to the right,re-establishing an equilibrium. 
D) the aggregate supply curve will shift to the left,re-establishing an equilibrium. 
E) the aggregate supply curve will shift to the right,re-establishing an equilibrium.

Question 14

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 F on AD1.A possible cause of this change in equilibrium is

Accepted Answer

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

Question 15

Consider the basic AD/AS macro model.A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level

Accepted Answer

A) and real GDP are higher than in the initial equilibrium. 
B) and real GDP are lower than in the initial equilibrium. 
C) is lower and real GDP higher than in the initial equilibrium. 
D) is higher and real GDP remained the same as in the initial equilibrium. 
E) is higher and real GDP lower than in the initial equilibrium. 
A) and real GDP are higher than in the initial equilibrium. 
B) and real GDP are lower than in the initial equilibrium. 
C) is lower and real GDP higher than in the initial equilibrium. 
D) is higher and real GDP remained the same as in the initial equilibrium. 
E) is higher and real GDP lower than in the initial equilibrium.

Question 16

Suppose there is a drop in the price of an important factor input.What will be the effect on the aggregate supply curve?

Accepted Answer

A) There will be movement to the left,along the AS curve. 
B) The AS curve will shift to the left. 
C) There will be movement to the right,along the AS curve. 
D) The AS curve will shift to the right. 
E) There will be no change in the AS curve. 
A) There will be movement to the left,along the AS curve. 
B) The AS curve will shift to the left. 
C) There will be movement to the right,along the AS curve. 
D) The AS curve will shift to the right. 
E) There will be no change in the AS curve.

Question 17

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

Accepted Answer

A) accumulate inventories. 
B) charge a higher price sufficient to cover their higher unit costs. 
C) experience rising factor prices. 
D) produce less in response to falling profits. 
E) increase output at unchanged unit costs. 
A) accumulate inventories. 
B) charge a higher price sufficient to cover their higher unit costs. 
C) experience rising factor prices. 
D) produce less in response to falling profits. 
E) increase output at unchanged unit costs.

Question 18

One of the reasons why the aggregate demand (AD)curve slopes downward is that

Accepted Answer

A) aggregate expenditure increases as the price level rises. 
B) decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate. 
A) aggregate expenditure increases as the price level rises. 
B) decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate.

Question 19

One of the reasons why the aggregate demand (AD)curve slopes downward is that

Accepted Answer

A) aggregate expenditure increases as the price level rises. 
B) increases in the price level cause consumers to substitute foreign goods for domestic goods. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate. 
A) aggregate expenditure increases as the price level rises. 
B) increases in the price level cause consumers to substitute foreign goods for domestic goods. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate.

Question 20

Consider the following news headline: ʺGovernments plan massive hospital construction programs across the country.ʺ Choose the statement below that best describes the likely macroeconomic effects.

Accepted Answer

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

Exam 23: Output and Prices in the Short Run

Consider the basic AD/AS model in the short run.When there is a change in autonomous desired expenditure,the simple multiplier is equal to the

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

Other things being equal,an exogenous rise in the domestic price level will

Suppose firms are currently producing output at a level beyond their normal capacity.In this situation,the AS curve will be relatively ________ and a positive AD shock will result in ________.

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.The corresponding point on the aggregate demand curve is point

Consider the basic AD/AS model.If firmsʹ unit costs remained constant as firms increased their output levels,this would lead to a

The economyʹs AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

Consider the basic AD/AS model.A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium,which in comparison to the original equilibrium,has a price level that is

An exogenous fall in the domestic price level causes an increase in real wealth and

Consider the nature of macroeconomic equilibrium.If,at a particular price level,aggregate output demanded is less than that supplied by producers,then

Consider the basic AD/AS macro model.A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level

Suppose there is a drop in the price of an important factor input.What will be the effect on the aggregate supply curve?

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

One of the reasons why the aggregate demand (AD)curve slopes downward is that

One of the reasons why the aggregate demand (AD)curve slopes downward is that

Consider the following news headline: ʺGovernments plan massive hospital construction programs across the country.ʺ Choose the statement below that best describes the likely macroeconomic effects.

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Exchange Rates and the Balance of Payments

Filters

Suppose firms are currently producing output at a level beyond their normal capacity.In this situation,the AS curve will be relatively and a positive AD shock will result in .