Question 1

If actual output exceeds potential output, the economy:

Accepted Answer

A) is experiencing an inflationary gap. 
B) is experiencing a recessionary gap. 
C) may be in a long-run equilibrium but is not in a short-run equilibrium. 
D) is in neither a short-run nor long-run equilibrium. 
A) is experiencing an inflationary gap. 
B) is experiencing a recessionary gap. 
C) may be in a long-run equilibrium but is not in a short-run equilibrium. 
D) is in neither a short-run nor long-run equilibrium.

Question 2

If potential output is less than actual output, eventually the short-run aggregate supply curve will shift:

Accepted Answer

A) up and eliminate the recessionary gap. 
B) down and eliminate the recessionary gap. 
C) up and eliminate the inflationary gap. 
D) down and eliminate the inflationary gap. 
A) up and eliminate the recessionary gap. 
B) down and eliminate the recessionary gap. 
C) up and eliminate the inflationary gap. 
D) down and eliminate the inflationary gap.

Question 3

Refer to the following graph.   The upward sloping relationship in the diagram represents the:

Accepted Answer

A) aggregate demand curve. 
B) short-run aggregate supply curve. 
C) long-run aggregate supply curve. 
D) quantity adjustment curve. 
A) aggregate demand curve. 
B) short-run aggregate supply curve. 
C) long-run aggregate supply curve. 
D) quantity adjustment curve.

Question 4

If the multiplier effect did not exist, the aggregate demand curve would:

Accepted Answer

A) be steeper. 
B) be flatter. 
C) be horizontal. 
D) not exist. 
A) be steeper. 
B) be flatter. 
C) be horizontal. 
D) not exist.

Question 5

Expansionary policy that followed the 2008 recession:

Accepted Answer

A) led to higher inflation rates than expected. 
B) did not reduce unemployment as much as desired. 
C) did not reduce the trade deficit as much as desired. 
D) led to higher growth rates than expected. 
A) led to higher inflation rates than expected. 
B) did not reduce unemployment as much as desired. 
C) did not reduce the trade deficit as much as desired. 
D) led to higher growth rates than expected.

Question 6

The AS/AD model looks similar to the microeconomic supply and demand model

Accepted Answer

A) but is not based on it. 
B) and is based on the microeconomic supply and demand model because the AS/AD is a macro representation of the micro model. 
C) and is based on the microeconomic supply and demand model because both are based on the principle of substitution. 
D) and is based on the microeconomic supply and demand model because both are based on opportunity costs. 
A) but is not based on it. 
B) and is based on the microeconomic supply and demand model because the AS/AD is a macro representation of the micro model. 
C) and is based on the microeconomic supply and demand model because both are based on the principle of substitution. 
D) and is based on the microeconomic supply and demand model because both are based on opportunity costs.

Question 7

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past. If productivity is growing faster than anticipated, they would expect the:

Accepted Answer

A) aggregate demand curve to be shifting to the right. 
B) aggregate demand curve to be shifting to the left. 
C) short-run aggregate supply curve to be shifting down (to the right). 
D) short-run aggregate supply curve to be shifting up (to the left). 
A) aggregate demand curve to be shifting to the right. 
B) aggregate demand curve to be shifting to the left. 
C) short-run aggregate supply curve to be shifting down (to the right). 
D) short-run aggregate supply curve to be shifting up (to the left).

Question 8

If the dollar were to depreciate against major foreign currency, the dollar's depreciation should result in:

Accepted Answer

A) an increase in U.S. exports and an outward shift of the U.S. aggregate demand curve. 
B) an increase in U.S. exports and an inward shift of the U.S. aggregate demand curve. 
C) a decrease in U.S. exports and an outward shift of the U.S. aggregate demand curve. 
D) a decrease in U.S. exports and an inward shift of the U.S. aggregate demand curve. 
A) an increase in U.S. exports and an outward shift of the U.S. aggregate demand curve. 
B) an increase in U.S. exports and an inward shift of the U.S. aggregate demand curve. 
C) a decrease in U.S. exports and an outward shift of the U.S. aggregate demand curve. 
D) a decrease in U.S. exports and an inward shift of the U.S. aggregate demand curve.

Question 9

Give two examples of expectations that would tend to cause the aggregate demand curve to rise (shift out to the right).

Accepted Answer

If there are expectations of rising inco

Question 10

The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

Accepted Answer

A) True 
 B)False

Question 11

Why would the U.S.be concerned about economies in other parts of the world,particularly Japan,Western Europe,Canada,and Mexico,having recessions?

Accepted Answer

When other countries are experiencing a

Question 12

Many economists have argued that labor market regulations in the European Union have stifled efficiency and held down potential GDP. If this argument is correct, the removal of these regulations should:

Accepted Answer

A) shift the short-run aggregate supply curve in to the left. 
B) shift the long-run aggregate supply curve out to the right. 
C) shift the aggregate demand curve out to the right. 
D) not affect the aggregate supply or aggregate demand curves. 
A) shift the short-run aggregate supply curve in to the left. 
B) shift the long-run aggregate supply curve out to the right. 
C) shift the aggregate demand curve out to the right. 
D) not affect the aggregate supply or aggregate demand curves.

Question 13

If potential output exceeds actual output, eventually:

Accepted Answer

A) input prices will rise and output will fall. 
B) both input prices and output will rise. 
C) input prices will fall and output will rise. 
D) both input prices and output will fall. 
A) input prices will rise and output will fall. 
B) both input prices and output will rise. 
C) input prices will fall and output will rise. 
D) both input prices and output will fall.

Question 14

If an economist argues that equilibrium output differs from potential output,is that economist most likely a Keynesian or Classical economist?

Accepted Answer

She is most likely a Keynesian

Question 15

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 3 percent when the price rises by 6 percent and the multiplier is 2, then the slope of the aggregate demand curve is:

Accepted Answer

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

Question 16

Explain verbally and demonstrate graphically how in an AS/AD model with dynamic feedback effects,a decline in the price level can lead to a vicious downward spiral.

Accepted Answer

Suppose the economy begins at point A.If

Question 17

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:

Accepted Answer

A) rise by 1 percent. 
B) fall by 1 percent. 
C) rise by 7 percent. 
D) fall by 7 percent. 
A) rise by 1 percent. 
B) fall by 1 percent. 
C) rise by 7 percent. 
D) fall by 7 percent.

Question 18

Refer to the graph shown. If the price level is P1 the:

Accepted Answer

A) short-run aggregate supply curve will shift up (to the left)in the long run to restore equilibrium. 
B) short-run aggregate supply curve will shift down (to the right)in the long run to restore equilibrium. 
C) aggregate demand curve will shift to the left in the long run to restore equilibrium. 
D) aggregate demand curve will shift to the right in the long run to restore equilibrium. 
A) short-run aggregate supply curve will shift up (to the left)in the long run to restore equilibrium. 
B) short-run aggregate supply curve will shift down (to the right)in the long run to restore equilibrium. 
C) aggregate demand curve will shift to the left in the long run to restore equilibrium. 
D) aggregate demand curve will shift to the right in the long run to restore equilibrium.

Question 19

For each of the following "quotes" from The Wall Street Journal,draw a picture to show how the AD curve will shift.Label your original curve AD0 and your new curve AD1.
(a)"The value of the US dollar rose about 50% against the yen and 20% against the mark."
(b)"The Dow Jones Industrials closed above 25,000 for the first time."
(c)"Federal investment in civilian capital and infrastructure,education,and research and development is falling."

Accepted Answer

NOTE: All of the pictures should indicat

Question 20

Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 4 percent. Given this information, which of the following policies is most appropriate according to the AS/AD model?

Accepted Answer

A) A tax cut 
B) An increase in government spending 
C) A tax increase 
D) No change in taxes or government spending 
A) A tax cut 
B) An increase in government spending 
C) A tax increase 
D) No change in taxes or government spending

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

If actual output exceeds potential output, the economy:

If potential output is less than actual output, eventually the short-run aggregate supply curve will shift:

Refer to the following graph. The upward sloping relationship in the diagram represents the:

If the multiplier effect did not exist, the aggregate demand curve would:

Expansionary policy that followed the 2008 recession:

The AS/AD model looks similar to the microeconomic supply and demand model

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past. If productivity is growing faster than anticipated, they would expect the:

If the dollar were to depreciate against major foreign currency, the dollar's depreciation should result in:

Give two examples of expectations that would tend to cause the aggregate demand curve to rise (shift out to the right).

The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

Why would the U.S.be concerned about economies in other parts of the world,particularly Japan,Western Europe,Canada,and Mexico,having recessions?

Many economists have argued that labor market regulations in the European Union have stifled efficiency and held down potential GDP. If this argument is correct, the removal of these regulations should:

If potential output exceeds actual output, eventually:

If an economist argues that equilibrium output differs from potential output,is that economist most likely a Keynesian or Classical economist?

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 3 percent when the price rises by 6 percent and the multiplier is 2, then the slope of the aggregate demand curve is:

Explain verbally and demonstrate graphically how in an AS/AD model with dynamic feedback effects,a decline in the price level can lead to a vicious downward spiral.

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:

Refer to the graph shown. If the price level is P1 the:

Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 4 percent. Given this information, which of the following policies is most appropriate according to the AS/AD model?

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. If the price level is P₁ the: