Question 1

Which of the following is the best example of a supply shock?

Accepted Answer

A) an increase in the availability of capital and machinery due to normal changes in business investment 
B) a decrease in the productivity of the labor force due to a decline in the average educational level of workers 
C) a decline in agricultural output due to a summer drought 
D) an increase in output as a result of an expansion in employment 
A) an increase in the availability of capital and machinery due to normal changes in business investment 
B) a decrease in the productivity of the labor force due to a decline in the average educational level of workers 
C) a decline in agricultural output due to a summer drought 
D) an increase in output as a result of an expansion in employment C

Question 2

During the crisis of 2008 housing prices ________ and stock prices ________. (Fill in the blank)

Accepted Answer

A) rose sharply; fell sharply 
B) fell sharply; rose sharply 
C) fell sharply; fell sharply 
D) rose sharply; rose sharply 
A) rose sharply; fell sharply 
B) fell sharply; rose sharply 
C) fell sharply; fell sharply 
D) rose sharply; rose sharply C

Question 3

An economic contraction caused by a shift in aggregate demand causes prices to

Accepted Answer

A) rise in the short run, and rise even more in the long run. 
B) rise in the short run, and fall back to their original level in the long run. 
C) fall in the short run, and fall even more in the long run. 
D) fall in the short run, and rise back to their original level in the long run. 
A) rise in the short run, and rise even more in the long run. 
B) rise in the short run, and fall back to their original level in the long run. 
C) fall in the short run, and fall even more in the long run. 
D) fall in the short run, and rise back to their original level in the long run. C

Question 4

Beginning from long-run equilibrium at point E1 in Figure 10-18, the aggregate demand curve shifts to AD2. The real GDP and price level (CPI) in short-run equilibrium will be

Accepted Answer

A) $10 billion and 200. 
B) $10 billion and 150. 
C) $10 billion and 100. 
D) $4 billion and 150. 
A) $10 billion and 200. 
B) $10 billion and 150. 
C) $10 billion and 100. 
D) $4 billion and 150.

Question 5

If the economy is operating at an output level beyond its full-employment capacity, which of the following would most likely direct the economy back to long-run equilibrium?

Accepted Answer

A) improvements in technology 
B) a decrease in the real rate of interest 
C) an increase in resource prices 
D) a decrease in resource prices 
A) improvements in technology 
B) a decrease in the real rate of interest 
C) an increase in resource prices 
D) a decrease in resource prices

Question 6

If a country's currency appreciates, which of the following will most likely happen?

Accepted Answer

A) Net exports will fall and aggregate demand will increase. 
B) Net exports will rise and aggregate demand will increase. 
C) Net exports will fall and aggregate demand will decrease. 
D) Net exports will rise and aggregate demand will decrease. 
A) Net exports will fall and aggregate demand will increase. 
B) Net exports will rise and aggregate demand will increase. 
C) Net exports will fall and aggregate demand will decrease. 
D) Net exports will rise and aggregate demand will decrease.

Question 7

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output,

Accepted Answer

A) the natural rate of unemployment will increase. 
B) long-run aggregate supply will increase. 
C) lower resource prices and declining interest rates will direct the economy back to full employment. 
D) higher resource prices and rising interest rates will direct the economy back to full employment. 
A) the natural rate of unemployment will increase. 
B) long-run aggregate supply will increase. 
C) lower resource prices and declining interest rates will direct the economy back to full employment. 
D) higher resource prices and rising interest rates will direct the economy back to full employment.

Question 8

Which of the following will cause an increase in aggregate demand within the AS/AD model?

Accepted Answer

A) a decrease in prices 
B) a decrease in the real interest rate 
C) a decrease in consumer optimism as measured by the consumer sentiment index 
D) a decrease in foreign incomes abroad 
A) a decrease in prices 
B) a decrease in the real interest rate 
C) a decrease in consumer optimism as measured by the consumer sentiment index 
D) a decrease in foreign incomes abroad

Question 9

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?

Accepted Answer

A) Improvements in technology will shift the LRAS curve to the right. 
B) Resource prices will increase, causing the SRAS curve to shift to the left. 
C) The unemployment rate will increase, causing the economy's aggregate supply curve to shift to the right. 
D) Interest rates will decline, shifting the aggregate demand curve to the right. 
A) Improvements in technology will shift the LRAS curve to the right. 
B) Resource prices will increase, causing the SRAS curve to shift to the left. 
C) The unemployment rate will increase, causing the economy's aggregate supply curve to shift to the right. 
D) Interest rates will decline, shifting the aggregate demand curve to the right.

Question 10

Which of the following shifts both short-run and long-run aggregate supply to the left?

Accepted Answer

A) a decrease in the actual rate of inflation 
B) a decrease in the expected rate of inflation 
C) a decrease in the capital stock 
D) a drought in the Midwest agricultural areas. 
A) a decrease in the actual rate of inflation 
B) a decrease in the expected rate of inflation 
C) a decrease in the capital stock 
D) a drought in the Midwest agricultural areas.

Question 11

When an economy is temporarily operating at an output that is beyond its full-employment rate,

Accepted Answer

A) excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment. 
B) excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment. 
C) lower wages and prices will quickly restore full employment. 
D) only restrictive fiscal policy will direct the economy back to full employment. 
A) excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment. 
B) excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment. 
C) lower wages and prices will quickly restore full employment. 
D) only restrictive fiscal policy will direct the economy back to full employment.

Question 12

Use the figure below to answer the following question(s).
Figure 10-6  
-Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the economy's current output and price level are

Accepted Answer

A) output y1 and price level P2. 
B) output y2 and price level P1. 
C) output y1 and price level P3. 
D) output y2 and price level P3. 
A) output y1 and price level P2. 
B) output y2 and price level P1. 
C) output y1 and price level P3. 
D) output y2 and price level P3.

Question 13

Which of the following contributed to the crisis of 2008?

Accepted Answer

A) a doubling of the price of imported oil during 2007-2008 
B) a sharp increase in the price of housing during 2008 
C) inclement weather in 2008 
D) falling resource prices and a reduction in the cost of production 
A) a doubling of the price of imported oil during 2007-2008 
B) a sharp increase in the price of housing during 2008 
C) inclement weather in 2008 
D) falling resource prices and a reduction in the cost of production

Question 14

If Asian economies suffer a serious economic slump, U.S. net exports will

Accepted Answer

A) increase and AD will shift rightward. 
B) increase and AD will shift leftward. 
C) decrease and AD will shift leftward. 
D) decrease and AD will shift rightward. 
A) increase and AD will shift rightward. 
B) increase and AD will shift leftward. 
C) decrease and AD will shift leftward. 
D) decrease and AD will shift rightward.

Question 15

Use the figure below to answer the following question(s).
Figure 10-4  
-Starting from long-run equilibrium at point F in Figure 10-4, at which of the following points would short-run equilibrium occur following a drought in the Midwestern states?

Accepted Answer

A) I 
B) F 
C) G 
D) H 
A) I 
B) F 
C) G 
D) H

Question 16

Use the figure below to answer the following question(s).
Figure 10-5  
-Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the following is the most likely occurrence?

Accepted Answer

A) an increase in resource prices that will stimulate aggregate demand and direct the economy to long-run equilibrium 
B) a decrease in resource prices that will reduce costs and shift SRAS to the right, directing the economy to long-run equilibrium 
C) a continuation of this price level and output in the long run 
D) a shift in LRAS to the left as the result of an increase in the expected inflation rate 
A) an increase in resource prices that will stimulate aggregate demand and direct the economy to long-run equilibrium 
B) a decrease in resource prices that will reduce costs and shift SRAS to the right, directing the economy to long-run equilibrium 
C) a continuation of this price level and output in the long run 
D) a shift in LRAS to the left as the result of an increase in the expected inflation rate

Question 17

How does the self-correcting mechanism act to pull the economy out of a recession?

Accepted Answer

During a recession (when actual output i

Question 18

Use the figure below to answer the following question(s).
Figure 10-5  
-Figure 10-5 indicates that the output of the economy is

Accepted Answer

A) greater than the economy's long-run capacity. 
B) equal to the economy's long-run capacity. 
C) less than the economy's long-run capacity. 
D) consistent with long-run equilibrium. 
A) greater than the economy's long-run capacity. 
B) equal to the economy's long-run capacity. 
C) less than the economy's long-run capacity. 
D) consistent with long-run equilibrium.

Question 19

Suppose the economy is in long-run equilibrium. In a short span of time, there is a pessimistic revision of expectations about future business conditions and an unexpected rise in the value of the dollar. In the short run, we would expect

Accepted Answer

A) the price level and real GDP both to rise. 
B) the price level and real GDP both to fall. 
C) the price level and real GDP both to stay the same. 
D) All of the above are possible. 
A) the price level and real GDP both to rise. 
B) the price level and real GDP both to fall. 
C) the price level and real GDP both to stay the same. 
D) All of the above are possible.

Question 20

In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by

Accepted Answer

A) an increase in aggregate demand. 
B) a decrease in aggregate demand. 
C) an increase in long-run aggregate supply. 
D) an increase in the general level of prices. 
A) an increase in aggregate demand. 
B) a decrease in aggregate demand. 
C) an increase in long-run aggregate supply. 
D) an increase in the general level of prices.

Which of the following is the best example of a supply shock?

During the crisis of 2008 housing prices and stock prices . (Fill in the blank)

An economic contraction caused by a shift in aggregate demand causes prices to

Beginning from long-run equilibrium at point E₁ in Figure 10-18, the aggregate demand curve shifts to AD₂. The real GDP and price level (CPI) in short-run equilibrium will be

If the economy is operating at an output level beyond its full-employment capacity, which of the following would most likely direct the economy back to long-run equilibrium?

If a country's currency appreciates, which of the following will most likely happen?

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output,

Which of the following will cause an increase in aggregate demand within the AS/AD model?

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?

Which of the following shifts both short-run and long-run aggregate supply to the left?

When an economy is temporarily operating at an output that is beyond its full-employment rate,

Use the figure below to answer the following question(s). Figure 10-6 -Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the economy's current output and price level are

Which of the following contributed to the crisis of 2008?

If Asian economies suffer a serious economic slump, U.S. net exports will

Use the figure below to answer the following question(s). Figure 10-4 -Starting from long-run equilibrium at point F in Figure 10-4, at which of the following points would short-run equilibrium occur following a drought in the Midwestern states?

Use the figure below to answer the following question(s). Figure 10-5 -Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the following is the most likely occurrence?

How does the self-correcting mechanism act to pull the economy out of a recession?

Use the figure below to answer the following question(s). Figure 10-5 -Figure 10-5 indicates that the output of the economy is

Suppose the economy is in long-run equilibrium. In a short span of time, there is a pessimistic revision of expectations about future business conditions and an unexpected rise in the value of the dollar. In the short run, we would expect

In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 10: Dynamic Change, Economic Fluctuations, and the Ad-As Model

Which of the following is the best example of a supply shock?

During the crisis of 2008 housing prices ________ and stock prices ________. (Fill in the blank)

An economic contraction caused by a shift in aggregate demand causes prices to

Beginning from long-run equilibrium at point E1 in Figure 10-18, the aggregate demand curve shifts to AD2. The real GDP and price level (CPI) in short-run equilibrium will be

If the economy is operating at an output level beyond its full-employment capacity, which of the following would most likely direct the economy back to long-run equilibrium?

If a country's currency appreciates, which of the following will most likely happen?

Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output,

Which of the following will cause an increase in aggregate demand within the AS/AD model?

If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?

Which of the following shifts both short-run and long-run aggregate supply to the left?

When an economy is temporarily operating at an output that is beyond its full-employment rate,

Use the figure below to answer the following question(s). Figure 10-6 -Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the economy's current output and price level are

Which of the following contributed to the crisis of 2008?

If Asian economies suffer a serious economic slump, U.S. net exports will

Use the figure below to answer the following question(s). Figure 10-4 -Starting from long-run equilibrium at point F in Figure 10-4, at which of the following points would short-run equilibrium occur following a drought in the Midwestern states?

Use the figure below to answer the following question(s). Figure 10-5 -Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the following is the most likely occurrence?

How does the self-correcting mechanism act to pull the economy out of a recession?

Use the figure below to answer the following question(s). Figure 10-5 -Figure 10-5 indicates that the output of the economy is

Suppose the economy is in long-run equilibrium. In a short span of time, there is a pessimistic revision of expectations about future business conditions and an unexpected rise in the value of the dollar. In the short run, we would expect

In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

During the crisis of 2008 housing prices and stock prices . (Fill in the blank)

Beginning from long-run equilibrium at point E₁ in Figure 10-18, the aggregate demand curve shifts to AD₂. The real GDP and price level (CPI) in short-run equilibrium will be