Question 1

Consider the basic AD/AS model. If their unit costs rise as output increases, price -taking firms will be prepared to produce only if .

Accepted Answer

A)  more; prices decrease 
B)  more; the economy is in equilibrium 
C)  their current output; prices increase 
D)  less; prices increase 
E)  more; prices increase 
A)  more; prices decrease 
B)  more; the economy is in equilibrium 
C)  their current output; prices increase 
D)  less; prices increase 
E)  more; prices increase

Question 2

Consider the following news headline: ʺThreat of widespread labour unrest leads to generous wage increases in several industries.ʺ Choose the statement below that best describes the likely macroeconomic effects.

Accepted Answer

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

Question 3

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 4

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 5

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 6

FIGURE 23-5
-Refer to Figure 23-5. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right, as shown. The simple multiplier is and the multiplier is .

Accepted Answer

A)  6; 1.2 
B)  2.8; 1.2 
C)  4; 1.2 
D)  4; 2.8 
E)  4; 3.2 
A)  6; 1.2 
B)  2.8; 1.2 
C)  4; 1.2 
D)  4; 2.8 
E)  4; 3.2

Question 7

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 8

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 9

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 10

A decrease in aggregate supply in the short run is

Accepted Answer

A)  reflected in a movement to the left along the AS curve. 
B)  reflected in a shift to the right in the AS curve. 
C)  interpreted to mean that less total output will be supplied at any given price level. 
D)  caused by a decrease in the price level. 
E)  caused by an increase in the price level. 
A)  reflected in a movement to the left along the AS curve. 
B)  reflected in a shift to the right in the AS curve. 
C)  interpreted to mean that less total output will be supplied at any given price level. 
D)  caused by a decrease in the price level. 
E)  caused by an increase in the price level.

Question 11

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 12

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 13

The economyʹs aggregate supply AS) curve shows the relationship between the price level and the total

Accepted Answer

A)  investment that firms wish to make, with input prices given. 
B)  investment that firms wish to make, as input prices vary. 
C)  output that firms wish to produce and sell, with input prices given. 
D)  output that firms wish to produce and sell, as input prices vary. 
E)  wealth accumulated by households, with national income given. 
A)  investment that firms wish to make, with input prices given. 
B)  investment that firms wish to make, as input prices vary. 
C)  output that firms wish to produce and sell, with input prices given. 
D)  output that firms wish to produce and sell, as input prices vary. 
E)  wealth accumulated by households, with national income given.

Question 14

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

Accepted Answer

A)  induced imports. 
B)  desired investment. 
C)  the net tax rate. 
D)  desired saving. 
E)  the price level. 
A)  induced imports. 
B)  desired investment. 
C)  the net tax rate. 
D)  desired saving. 
E)  the price level.

Question 15

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

Accepted Answer

A)  desired exports. 
B)  government purchases. 
C)  government transfer payments to households. 
D)  the net tax rate. 
E)  desired investment. 
A)  desired exports. 
B)  government purchases. 
C)  government transfer payments to households. 
D)  the net tax rate. 
E)  desired investment.

Question 16

FIGURE 23-4
-Refer to Figure 23-4. Suppose the Canadian economy is initially in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock?

Accepted Answer

A)  an increase in the net tax rate 
B)  a decrease in firmsʹ desired investment expenditures 
C)  an increase in factor prices 
D)  a decrease in labour productivity 
E)  a decrease in the world price of oil 
A)  an increase in the net tax rate 
B)  a decrease in firmsʹ desired investment expenditures 
C)  an increase in factor prices 
D)  a decrease in labour productivity 
E)  a decrease in the world price of oil

Question 17

If the AS curve is vertical and there is a decrease in aggregate demand, the result is

Accepted Answer

A)  a decrease in the price level with no change in real GDP. 
B)  an equal decrease in national income. 
C)  an increase in the price level. 
D)  an increase in national income. 
E)  no change in either price level or real GDP. 
A)  a decrease in the price level with no change in real GDP. 
B)  an equal decrease in national income. 
C)  an increase in the price level. 
D)  an increase in national income. 
E)  no change in either price level or real GDP.

Question 18

FIGURE 23-5
-Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then what is the value of the multiplier?

Accepted Answer

A)  1.2 
B)  1.5 
C)  4.0 
D)  5.0 
E)  not enough information to know 
A)  1.2 
B)  1.5 
C)  4.0 
D)  5.0 
E)  not enough information to know

Question 19

Aggregate supply refers to the

Accepted Answer

A)  decisions of firms to decrease inputs in order to produce outputs. 
B)  effects of increases in input prices on output. 
C)  economyʹs potential output at each possible labour force. 
D)  supply of labour inputs in the economy. 
E)  total output of goods and services that firms would like to produce and sell. 
A)  decisions of firms to decrease inputs in order to produce outputs. 
B)  effects of increases in input prices on output. 
C)  economyʹs potential output at each possible labour force. 
D)  supply of labour inputs in the economy. 
E)  total output of goods and services that firms would like to produce and sell.

Question 20

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.

Exam 23: Output and Prices in the Short Run

Consider the basic AD/AS model. If their unit costs rise as output increases, price -taking firms will be prepared to produce only if .

Consider the following news headline: ʺThreat of widespread labour unrest leads to generous wage increases in several industries.ʺ Choose the statement below that best describes the likely macroeconomic effects.

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

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

FIGURE 23-5 -Refer to Figure 23-5. Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right, as shown. The simple multiplier is and the multiplier is .

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

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 .

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

A decrease in aggregate supply in the short run is

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

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

The economyʹs aggregate supply AS) curve shows the relationship between the price level and the total

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

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

FIGURE 23-4 -Refer to Figure 23-4. Suppose the Canadian economy is initially in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock?

If the AS curve is vertical and there is a decrease in aggregate demand, the result is

FIGURE 23-5 -Refer to Figure 23-5. Suppose that an increase in autonomous investment caused the AD curve to shift to the right, as shown. If the simple multiplier in this model is 5, then what is the value of the multiplier?

Aggregate supply refers to the

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

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