Question 1

In building a macro model with an AS curve, it is assumed that producers will

Accepted Answer

A)  increase prices without changing their output. 
B)  decrease their prices without changing output. 
C)  decrease their prices when they expand output. 
D)  produce as much as possible at the existing price level. 
E)  produce more output only if prices rise. 
A)  increase prices without changing their output. 
B)  decrease their prices without changing output. 
C)  decrease their prices when they expand output. 
D)  produce as much as possible at the existing price level. 
E)  produce more output only if prices rise.

Question 2

FIGURE 23-2
-Refer to Figure 23-2. The shift from AS1 to AS2 shown in the diagram is referred to as an)

Accepted Answer

A)  increase in aggregate supply. 
B)  increase in unit costs. 
C)  negative aggregate supply shock. 
D)  positive aggregate supply shock. 
E)  decrease in unit costs. 
A)  increase in aggregate supply. 
B)  increase in unit costs. 
C)  negative aggregate supply shock. 
D)  positive aggregate supply shock. 
E)  decrease in unit costs.

Question 3

Other things being equal, an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change since the changes in the wealth of bondholders and bond issuers offset each other. 
D)  either increase or decrease depending on other factors. 
E)  rise in nominal terms, but fall in real terms. 
A)  decrease. 
B)  increase. 
C)  not change since the changes in the wealth of bondholders and bond issuers offset each other. 
D)  either increase or decrease depending on other factors. 
E)  rise in nominal terms, but fall in real terms.

Question 4

The concept of ʺdemand-determined outputʺ requires to remain constant as output increases.

Accepted Answer

A)  technology of production 
B)  government purchases 
C)  firmsʹ unit costs 
D)  labour productivity 
E)  the ratio of price setters to price takers 
A)  technology of production 
B)  government purchases 
C)  firmsʹ unit costs 
D)  labour productivity 
E)  the ratio of price setters to price takers

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)  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 6

A leftward shift in the economyʹs AS curve implies that

Accepted Answer

A)  at any given price level, a lower level of output will be supplied. 
B)  at any given price level, a higher level of output will be supplied. 
C)  there is an increase in aggregate supply. 
D)  there is a demand shock. 
E)  the same output will be produced in equilibrium, but at a lower price level. 
A)  at any given price level, a lower level of output will be supplied. 
B)  at any given price level, a higher level of output will be supplied. 
C)  there is an increase in aggregate supply. 
D)  there is a demand shock. 
E)  the same output will be produced in equilibrium, but at a lower price level.

Question 7

The economyʹs aggregate supply AS) curve shows the relationship between the

Accepted Answer

A)  equilibrium real GDP and marginal cost. 
B)  equilibrium real GDP and desired consumption. 
C)  price level and the marginal propensity to consume MP
C) . 
D)  price level and the total output that firms wish to produce and sell, with technology and input prices held constant. 
E)  price level and the total output that firms wish to produce and sell, as technology and input prices vary. 
A)  equilibrium real GDP and marginal cost. 
B)  equilibrium real GDP and desired consumption. 
C)  price level and the marginal propensity to consume MP
C) . 
D)  price level and the total output that firms wish to produce and sell, with technology and input prices held constant. 
E)  price level and the total output that firms wish to produce and sell, as technology and input prices vary.

Question 8

Other things being equal, as the price level falls exogenously, the aggregate expenditure AE) function shifts

Accepted Answer

A)  down and the economy will move upward along the AD curve. 
B)  down and the economy will move downward along the AD curve. 
C)  upward and the economy moves upward along the AD curve. 
D)  upward and the economy moves downward along the AD curve. 
E)  to the left, as does the AD curve. 
A)  down and the economy will move upward along the AD curve. 
B)  down and the economy will move downward along the AD curve. 
C)  upward and the economy moves upward along the AD curve. 
D)  upward and the economy moves downward along the AD curve. 
E)  to the left, as does the AD curve.

Question 9

A decrease in aggregate supply in the short run is

Accepted Answer

A)  shown by a shift to the left of the AS curve. 
B)  shown by a shift to the right of the AS curve. 
C)  interpreted to mean that more national 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)  shown by a shift to the left of the AS curve. 
B)  shown by a shift to the right of the AS curve. 
C)  interpreted to mean that more national 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 10

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 11

Consider the basic AD/AS model. Suppose that high-school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will

Accepted Answer

A)  shift the AS curve to the left. 
B)  shift the AS curve to the right. 
C)  shift the AD curve to the left. 
D)  shift the AD curve to the right. 
E)  cause a movement along the AS curve to the right. 
A)  shift the AS curve to the left. 
B)  shift the AS curve to the right. 
C)  shift the AD curve to the left. 
D)  shift the AD curve to the right. 
E)  cause a movement along the AS curve to the right.

Question 12

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 13

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 14

If the economyʹs AS curve is completely horizontal, the multiplier in the AD/AS model is

Accepted Answer

A)  infinitely large. 
B)  equal to the simple multiplier. 
C)  smaller than the simple multiplier. 
D)  is zero. 
E)  negative. 
A)  infinitely large. 
B)  equal to the simple multiplier. 
C)  smaller than the simple multiplier. 
D)  is zero. 
E)  negative.

Question 15

Other things being equal, as the price level rises exogenously, the aggregate expenditure AE) function shifts

Accepted Answer

A)  down and the economy will move upward to the left along the AD curve. 
B)  down and the economy will move downward to the right along the AD curve. 
C)  upward and the economy moves upward to the left along the AD curve. 
D)  upward and the economy moves downward to the right along the AD curve. 
E)  to the right and the AD curve will also shift to the right. 
A)  down and the economy will move upward to the left along the AD curve. 
B)  down and the economy will move downward to the right along the AD curve. 
C)  upward and the economy moves upward to the left along the AD curve. 
D)  upward and the economy moves downward to the right along the AD curve. 
E)  to the right and the AD curve will also shift to the right.

Question 16

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

Question 17

The economyʹs aggregate supply curve is drawn under two main assumptions. They are

Accepted Answer

A)  firmsʹ unit costs are constant; prices of all factors of production are constant. 
B)  firmsʹ unit costs are constant; the state of technology is constant. 
C)  firms will produce more output only if prices rise; technology improves only if prices rise. 
D)  the prices of all factors of production are constant; the state of technology is constant. 
E)  the prices of all factors of production are constant; productivity improves as the price level rises. 
A)  firmsʹ unit costs are constant; prices of all factors of production are constant. 
B)  firmsʹ unit costs are constant; the state of technology is constant. 
C)  firms will produce more output only if prices rise; technology improves only if prices rise. 
D)  the prices of all factors of production are constant; the state of technology is constant. 
E)  the prices of all factors of production are constant; productivity improves as the price level rises.

Question 18

FIGURE 23-3
-Refer to Figure 23-3. Suppose the price level in Economy A is above P0. Which of the following statements describes what would occur?

Accepted Answer

A)  The AD curve would shift to the right until macro equilibrium is reached. 
B)  Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at P0. 
C)  The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at P0. 
D)  Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium. 
E)  The AS curve would shift to the left until macro equilibrium is reached. 
A)  The AD curve would shift to the right until macro equilibrium is reached. 
B)  Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at P0. 
C)  The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at P0. 
D)  Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium. 
E)  The AS curve would shift to the left until macro equilibrium is reached.

Question 19

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 20

Other things being equal, an economy with a higher net tax rate will have a marginal propensity to spend and thus a AD curve compared to an economy with a lower net tax rate.

Accepted Answer

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

Exam 23: Output and Prices in the Short Run

In building a macro model with an AS curve, it is assumed that producers will

FIGURE 23-2 -Refer to Figure 23-2. The shift from AS1 to AS2 shown in the diagram is referred to as an)

Other things being equal, an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

The concept of ʺdemand-determined outputʺ requires to remain constant as output increases.

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

A leftward shift in the economyʹs AS curve implies that

The economyʹs aggregate supply AS) curve shows the relationship between the

Other things being equal, as the price level falls exogenously, the aggregate expenditure AE) function shifts

A decrease in aggregate supply in the short run is

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

Consider the basic AD/AS model. Suppose that high-school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will

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

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

If the economyʹs AS curve is completely horizontal, the multiplier in the AD/AS model is

Other things being equal, as the price level rises exogenously, the aggregate expenditure AE) function shifts

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.

The economyʹs aggregate supply curve is drawn under two main assumptions. They are

FIGURE 23-3 -Refer to Figure 23-3. Suppose the price level in Economy A is above P0. Which of the following statements describes what would occur?

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, an economy with a higher net tax rate will have a marginal propensity to spend and thus a AD curve compared to an economy with a lower net tax rate.

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