Question 1

Refer to the graph shown. In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in:

Accepted Answer

A) a recessionary gap. 
B) an inflationary gap. 
C) a long-run equilibrium. 
D) a short-run equilibrium but not a long-run equilibrium. 
A) a recessionary gap. 
B) an inflationary gap. 
C) a long-run equilibrium. 
D) a short-run equilibrium but not a long-run equilibrium.

Question 2

As a response to the 2008 recession, the U.S. government employed expansionary policy, and the economy returned to its level of potential output.

Accepted Answer

A) True 
 B)False

Question 3

The multiplier effect exists because:

Accepted Answer

A) production and expenditures are interdependent. 
B) when one person increases expenditures, everyone decreases expenditures. 
C) production and expenditures are independent. 
D) production lowers expenditures. 
A) production and expenditures are interdependent. 
B) when one person increases expenditures, everyone decreases expenditures. 
C) production and expenditures are independent. 
D) production lowers expenditures.

Question 4

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

Accepted Answer

A) prices. 
B) production. 
C) both production and prices. 
D) neither production nor prices. 
A) prices. 
B) production. 
C) both production and prices. 
D) neither production nor prices.

Question 5

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

Accepted Answer

A) −1/2. 
B) −2/3. 
C) −2. 
D) −3. 
A) −1/2. 
B) −2/3. 
C) −2. 
D) −3.

Question 6

An increase in aggregate demand in the long run, will change:

Accepted Answer

A) output but not price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level. 
A) output but not price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level.

Question 7

Refer to the graph shown. A decrease in aggregate demand in the short run is likely to cause a movement from:

Accepted Answer

A) C to D. 
B) B to D. 
C) B to A. 
D) C to A. 
A) C to D. 
B) B to D. 
C) B to A. 
D) C to A.

Question 8

Suppose output exceeds potential output and contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce:

Accepted Answer

A) a lower output level and a lower price level than would have occurred if no action were taken. 
B) a lower price level than would otherwise have occurred if no action were taken. 
C) a lower output level than would otherwise have occurred if no action were taken. 
D) neither a lower price level nor a lower output level than would otherwise have occurred if no action were taken. 
A) a lower output level and a lower price level than would have occurred if no action were taken. 
B) a lower price level than would otherwise have occurred if no action were taken. 
C) a lower output level than would otherwise have occurred if no action were taken. 
D) neither a lower price level nor a lower output level than would otherwise have occurred if no action were taken.

Question 9

In the standard supply demand model,a fall in price brings a market with a shortage of quantity demanded into equilibrium by increasing the quantity demanded and decreasing the quantity supplied.Why doesn't that work in the aggregate?

Accepted Answer

There are a number of reasons why.First,

Question 10

Refer to the following graphs.   Which of the graphs correctly labels the axes of the AS/AD model?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 11

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

Accepted Answer

A) shift left by more than 20. 
B) shift left by less than 20. 
C) shift left by exactly 20. 
D) not shift at all. 
A) shift left by more than 20. 
B) shift left by less than 20. 
C) shift left by exactly 20. 
D) not shift at all.

Question 12

Explain why the aggregate demand curve is downward sloping.(As the price level falls,the quantity of real output demanded increases. ).List five factors that might cause the AD curve to shift outward.

Accepted Answer

Three reasons why the aggregate quantity

Question 13

Fiscal policy is:

Accepted Answer

A) easy to enact and quick to affect the economy. 
B) easy to enact but slow to affect the economy. 
C) difficult to enact but quick to affect the economy. 
D) difficult to enact and slow to affect the economy. 
A) easy to enact and quick to affect the economy. 
B) easy to enact but slow to affect the economy. 
C) difficult to enact but quick to affect the economy. 
D) difficult to enact and slow to affect the economy.

Question 14

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

Accepted Answer

A) a short-run equilibrium but not necessarily a long-run equilibrium. 
B) a long-run equilibrium but not necessarily a short-run equilibrium. 
C) both a short-run and a long-run equilibrium. 
D) neither a short-run nor a long-run equilibrium. 
A) a short-run equilibrium but not necessarily a long-run equilibrium. 
B) a long-run equilibrium but not necessarily a short-run equilibrium. 
C) both a short-run and a long-run equilibrium. 
D) neither a short-run nor a long-run equilibrium.

Question 15

What of the following would be the best example of a posted-price market?

Accepted Answer

A) Auctions on eBay.com 
B) Computers at Apple.com 
C) Stock prices at Schwab.com 
D) Grain on the Mercantile Exchange 
A) Auctions on eBay.com 
B) Computers at Apple.com 
C) Stock prices at Schwab.com 
D) Grain on the Mercantile Exchange

Question 16

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A) An increase in foreign income 
B) A depreciation in the value of the country's currency 
C) A higher future expected price level 
D) A decrease in exports 
A) An increase in foreign income 
B) A depreciation in the value of the country's currency 
C) A higher future expected price level 
D) A decrease in exports

Question 17

A recessionary gap exists when:

Accepted Answer

A) aggregate demand exceeds output. 
B) actual output exceeds potential output. 
C) output exceeds aggregate demand. 
D) potential output exceeds actual output. 
A) aggregate demand exceeds output. 
B) actual output exceeds potential output. 
C) output exceeds aggregate demand. 
D) potential output exceeds actual output.

Question 18

According to the Keynesian model,

Accepted Answer

A) wages are flexible because workers wouldn't otherwise be able to keep their jobs. 
B) the price level is somewhat fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment. 
C) prices are subject to significant fluctuations as demand and supply change. 
D) the government puts price controls on the economy, keeping the price level fixed. 
A) wages are flexible because workers wouldn't otherwise be able to keep their jobs. 
B) the price level is somewhat fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment. 
C) prices are subject to significant fluctuations as demand and supply change. 
D) the government puts price controls on the economy, keeping the price level fixed.

Question 19

If workers begin to expect more inflation in the future, then we would expect that the:

Accepted Answer

A) short-run aggregate supply curve will shift up (to the left). 
B) short-run aggregate supply curve will shift down (to the right). 
C) short-run aggregate supply curve will not shift. 
D) aggregate demand curve will shift left. 
A) short-run aggregate supply curve will shift up (to the left). 
B) short-run aggregate supply curve will shift down (to the right). 
C) short-run aggregate supply curve will not shift. 
D) aggregate demand curve will shift left.

Question 20

What are the effects of an increase in aggregate demand (AD)in the short run and the long run? What is the effect of an increase in the short run aggregate supply (SAS)? What is the effect of an increase in Long run Aggregate Supply (LAS)?

Accepted Answer

The short run effect of an increase in A

Exam 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

Refer to the graph shown. In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in:

As a response to the 2008 recession, the U.S. government employed expansionary policy, and the economy returned to its level of potential output.

The multiplier effect exists because:

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

An increase in aggregate demand in the long run, will change:

Refer to the graph shown. A decrease in aggregate demand in the short run is likely to cause a movement from:

Suppose output exceeds potential output and contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce:

In the standard supply demand model,a fall in price brings a market with a shortage of quantity demanded into equilibrium by increasing the quantity demanded and decreasing the quantity supplied.Why doesn't that work in the aggregate?

Refer to the following graphs. Which of the graphs correctly labels the axes of the AS/AD model?

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

Explain why the aggregate demand curve is downward sloping.(As the price level falls,the quantity of real output demanded increases. ).List five factors that might cause the AD curve to shift outward.

Fiscal policy is:

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

What of the following would be the best example of a posted-price market?

Which of the following would shift the aggregate demand curve to the left?

A recessionary gap exists when:

According to the Keynesian model,

If workers begin to expect more inflation in the future, then we would expect that the:

What are the effects of an increase in aggregate demand (AD)in the short run and the long run? What is the effect of an increase in the short run aggregate supply (SAS)? What is the effect of an increase in Long run Aggregate Supply (LAS)?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Refer to the graph shown. In the graph, if the price level is P₀ and the aggregate demand curve is AD_0,then the economy is in: