Question 1

Consider the AD/AS model in which the price level varies. In this case, the multiplier is the simple multiplier.

Accepted Answer

A)  larger than 
B)  smaller than 
C)  definitionally the same as 
D)  not comparable to 
E)  equal to 
A)  larger than 
B)  smaller than 
C)  definitionally the same as 
D)  not comparable to 
E)  equal to B

Question 2

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. B

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. D

Question 4

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.

Question 5

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 6

Which of the following will cause a positive aggregate supply shock?

Accepted Answer

A)  an increase in the price of raw materials 
B)  a decrease in the price of foreign output 
C)  an increase in the price of foreign output 
D)  a decrease in the price of oil 
E)  a decrease in productivity 
A)  an increase in the price of raw materials 
B)  a decrease in the price of foreign output 
C)  an increase in the price of foreign output 
D)  a decrease in the price of oil 
E)  a decrease in productivity

Question 7

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.

Question 8

Consider the basic AD/AS model. Real GDP is demand determined along the

Accepted Answer

A)  upward-sloping portion of the AS curve. 
B)  downward-sloping portion of the AS curve. 
C)  vertical portion of the AS curve. 
D)  horizontal portion of the AS curve. 
E)  None of the above real GDP cannot be demand determined. 
A)  upward-sloping portion of the AS curve. 
B)  downward-sloping portion of the AS curve. 
C)  vertical portion of the AS curve. 
D)  horizontal portion of the AS curve. 
E)  None of the above real GDP cannot be demand determined.

Question 9

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because

Accepted Answer

A)  of increasing factor prices. 
B)  of increasing productivity of the factors of production. 
C)  of diminishing marginal productivity of the factors of production. 
D)  of rising competition among price setters. 
E)  of excess capacity at higher levels of output. 
A)  of increasing factor prices. 
B)  of increasing productivity of the factors of production. 
C)  of diminishing marginal productivity of the factors of production. 
D)  of rising competition among price setters. 
E)  of excess capacity at higher levels of output.

Question 10

Consider the AD/AS model. Suppose there is a decrease in aggregate demand and, simultaneously, an increase 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 11

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.

Question 12

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 13

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level

Accepted Answer

A)  the steeper the AS curve. 
B)  on the downward-sloping portion of the AS curve. 
C)  the flatter the AS curve. 
D)  when the AS curve is vertical. 
E)  if the AD curve is steep. 
A)  the steeper the AS curve. 
B)  on the downward-sloping portion of the AS curve. 
C)  the flatter the AS curve. 
D)  when the AS curve is vertical. 
E)  if the AD curve is steep.

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

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 16

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.

Question 17

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.

Question 18

Consider the relationship between the AE curve and the AD curve. A rise in the amount of desired investment expenditure at each level of national income

Accepted Answer

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

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

On a graph that shows the derivation of the AD curve, an exogenous change in the price level causes

Accepted Answer

A)  a shift in the AE curve and a movement along the AD curve. 
B)  a shift in both the AE and AD curves. 
C)  a movement along the AE curve and a shift in the AD curve. 
D)  a movement along the AE curve but not along the AD curve. 
E)  a movement along both the AE and AD curves. 
A)  a shift in the AE curve and a movement along the AD curve. 
B)  a shift in both the AE and AD curves. 
C)  a movement along the AE curve and a shift in the AD curve. 
D)  a movement along the AE curve but not along the AD curve. 
E)  a movement along both the AE and AD curves.

Exam 23: Output and Prices in the Short Run

Consider the AD/AS model in which the price level varies. In this case, the multiplier is the simple multiplier.

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

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

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

Which of the following will cause a positive aggregate supply shock?

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

Consider the basic AD/AS model. Real GDP is demand determined along the

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because

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

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

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level

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

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

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

Consider the relationship between the AE curve and the AD curve. A rise in the amount of desired investment expenditure at each level of national income

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.

On a graph that shows the derivation of the AD curve, an exogenous change in the price level causes

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

Trade Policy

Exchange Rates and the Balance of Payments

Filters