Question 1

Which of the following does not change aggregate demand?

Accepted Answer

A) an increase in expected future income 
B) a change in fiscal policy 
C) a change in monetary policy 
D) an advance in technology 
E) a rise in the exchange rate 
A) an increase in expected future income 
B) a change in fiscal policy 
C) a change in monetary policy 
D) an advance in technology 
E) a rise in the exchange rate

Question 2

Full-employment equilibrium occurs when

Accepted Answer

A) aggregate demand equals short-run aggregate supply. 
B) all who are willing and able to work, are working. 
C) real GDP equals potential GDP. 
D) real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100. 
E) all who are willing and able to work, are working and the wage level is set so that the GDP deflator equals 100. 
A) aggregate demand equals short-run aggregate supply. 
B) all who are willing and able to work, are working. 
C) real GDP equals potential GDP. 
D) real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100. 
E) all who are willing and able to work, are working and the wage level is set so that the GDP deflator equals 100.

Question 3

We observe a decrease in the price level and a decrease in real GDP.Which of the following is a possible explanation?

Accepted Answer

A) a decrease in the quantity of money 
B) an increase in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits 
A) a decrease in the quantity of money 
B) an increase in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits

Question 4

The long-run aggregate supply curve is vertical because

Accepted Answer

A) potential GDP is independent of the price level. 
B) actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve. 
C) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. 
D) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. 
E) potential GDP never changes. 
A) potential GDP is independent of the price level. 
B) actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve. 
C) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. 
D) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. 
E) potential GDP never changes.

Question 5

The economy cannot remain indefinitely with real GDP greater than potential GDP because the money wage rate will

Accepted Answer

A) decrease, shifting the LAS curve rightward. 
B) decrease, shifting the SAS curve rightward. 
C) increase, shifting the LAS curve leftward. 
D) increase, shifting the SAS curve leftward. 
E) increase, shifting the SAS curve rightward. 
A) decrease, shifting the LAS curve rightward. 
B) decrease, shifting the SAS curve rightward. 
C) increase, shifting the LAS curve leftward. 
D) increase, shifting the SAS curve leftward. 
E) increase, shifting the SAS curve rightward.

Question 6

Which one of the following newspaper quotations describes a leftward shift of the LAS curve?

Accepted Answer

A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the work force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton." 
A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the work force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 7

Which one of the following is a reason for the negative slope of the aggregate demand curve?

Accepted Answer

A) the real wage effect 
B) the substitution effects 
C) the expected inflation effect 
D) the nominal balance effect 
E) the income effect 
A) the real wage effect 
B) the substitution effects 
C) the expected inflation effect 
D) the nominal balance effect 
E) the income effect

Question 8

Use the figure below to answer the following questions.
   
Figure 26.3.2
-Refer to Figure 26.3.2.If the economy of Mythlo automatically adjusts to long-run equilibrium,then

Accepted Answer

A) the price level rises to 90. 
B) real GDP is $600 billion. 
C) the actual unemployment rate exceeds the natural unemployment rate. 
D) potential GDP decreases. 
E) the SAS curve shifts rightward. 
A) the price level rises to 90. 
B) real GDP is $600 billion. 
C) the actual unemployment rate exceeds the natural unemployment rate. 
D) potential GDP decreases. 
E) the SAS curve shifts rightward.

Question 9

Use the figure below to answer the following questions.
   
Figure 26.3.3
-Refer to Figure 26.3.3.In which of the graphs would we predict that eventually the price level will rise and real GDP will fall,all else remaining the same?

Accepted Answer

A) (a)only 
B) (d)only 
C) (b)only 
D) (c)and (d) 
E) (c)only 
A) (a)only 
B) (d)only 
C) (b)only 
D) (c)and (d) 
E) (c)only

Question 10

Use the figure below to answer the following questions.
   
Figure 26.2.1
-Refer to Figure 26.2.1.Which graph illustrates what happens when the quantity of money decreases?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) None of the above 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) None of the above

Question 11

Use the figure below to answer the following questions.
   
Figure 26.3.1
-Refer to Figure 26.3.1.If Econoworld automatically adjusts to a long-run equilibrium,then in the long-run macroeconomic equilibrium

Accepted Answer

A) the price level is 70. 
B) real GDP is $440 billion. 
C) actual unemployment exceeds the natural unemployment rate. 
D) potential GDP is greater than in the short run. 
E) both A and B. 
A) the price level is 70. 
B) real GDP is $440 billion. 
C) actual unemployment exceeds the natural unemployment rate. 
D) potential GDP is greater than in the short run. 
E) both A and B.

Question 12

Use the figure below to answer the following questions.
   
Figure 26.3.2
-Refer to Figure 26.3.2.In Mythlo there is a difference between the ________ equilibrium real GDP and potential GDP of ________ billion.

Accepted Answer

A) above full-employment;$50 
B) above full-employment;$25 
C) below full-employment;$50 
D) below full-employment;$25 
E) full employment;0 
A) above full-employment;$50 
B) above full-employment;$25 
C) below full-employment;$50 
D) below full-employment;$25 
E) full employment;0

Question 13

Use the figure below to answer the following questions.
   
Figure 26.3.2
-Refer to Figure 26.3.2.As the economy of Mythlo automatically adjusts to long-run equilibrium,the

Accepted Answer

A) SAS curve shifts rightward. 
B) AD curve shifts rightward. 
C) SAS curve shifts leftward. 
D) AD curve shifts leftward. 
E) LAS curve shifts rightward. 
A) SAS curve shifts rightward. 
B) AD curve shifts rightward. 
C) SAS curve shifts leftward. 
D) AD curve shifts leftward. 
E) LAS curve shifts rightward.

Question 14

Use the table below to answer the following questions.
Table 26.3.1
  
-Refer to Table 26.3.1.Consider the economy represented in the table.The economy is in

Accepted Answer

A) a long-run equilibrium, and resource prices will not change. 
B) an above full-employment equilibrium, and factor prices will increase. 
C) an above full-employment equilibrium, and factor prices will decrease. 
D) a below full-employment equilibrium, and factor prices will decrease. 
E) a below full-employment equilibrium, and factor prices will increase. 
A) a long-run equilibrium, and resource prices will not change. 
B) an above full-employment equilibrium, and factor prices will increase. 
C) an above full-employment equilibrium, and factor prices will decrease. 
D) a below full-employment equilibrium, and factor prices will decrease. 
E) a below full-employment equilibrium, and factor prices will increase.

Question 15

Which one of the following variables is not held constant along a given aggregate demand curve?

Accepted Answer

A) fiscal policy 
B) real income 
C) tax rates 
D) expectations about inflation 
E) the price level 
A) fiscal policy 
B) real income 
C) tax rates 
D) expectations about inflation 
E) the price level

Question 16

We observe an increase in the price level and an increase in real GDP.Which of the following is a possible explanation?

Accepted Answer

A) a decrease in the quantity of money 
B) a decrease in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits 
A) a decrease in the quantity of money 
B) a decrease in expected future income 
C) an increase in factor prices 
D) an increase in the quantity of capital 
E) an increase in expected future profits

Question 17

Which one of the following newspaper quotations describes a movement along an SAS curve?

Accepted Answer

A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the labour force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton." 
A) "The decrease in consumer spending may lead to a recession." 
B) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." 
C) "Recent higher wage settlements are expected to cause higher inflation this year." 
D) "Growth has been unusually high the last few years due to more women entering the labour force." 
E) "The recent tornadoes destroyed many factories in Calgary and Edmonton."

Question 18

Disposable income is aggregate income

Accepted Answer

A) minus taxes and benefits. 
B) minus taxes plus transfer payments. 
C) minus fixed expenses such as rent and utilities. 
D) plus transfer payments. 
E) minus taxes. 
A) minus taxes and benefits. 
B) minus taxes plus transfer payments. 
C) minus fixed expenses such as rent and utilities. 
D) plus transfer payments. 
E) minus taxes.

Question 19

Use the figure below to answer the following questions.
   
Figure 26.3.2
-Refer to Figure 26.3.2.Consider statements (1)and (2)and select the correct answer.
(1) The economy of Mythlo is experiencing an above full-employment equilibrium.
(2) SAS will automatically shift rightward as the economy adjusts to long-run equilibrium.

Accepted Answer

A) (1)is true;(2)is false. 
B) (2)is true;(1)is false. 
C) (1)and (2)are false. 
D) (1)and (2)are true. 
E) (1)is true;(2)is true only if the LAS curve shifts rightward at the same time. 
A) (1)is true;(2)is false. 
B) (2)is true;(1)is false. 
C) (1)and (2)are false. 
D) (1)and (2)are true. 
E) (1)is true;(2)is true only if the LAS curve shifts rightward at the same time.

Question 20

Potential GDP is the level of real GDP at which

Accepted Answer

A) aggregate demand equals short-run aggregate supply. 
B) there is full employment. 
C) there is a recessionary gap. 
D) there is over-full employment. 
E) prices are sure to rise. 
A) aggregate demand equals short-run aggregate supply. 
B) there is full employment. 
C) there is a recessionary gap. 
D) there is over-full employment. 
E) prices are sure to rise.

Exam 26: Aggregate Supply and Aggregate Demand

Which of the following does not change aggregate demand?

Full-employment equilibrium occurs when

We observe a decrease in the price level and a decrease in real GDP.Which of the following is a possible explanation?

The long-run aggregate supply curve is vertical because

The economy cannot remain indefinitely with real GDP greater than potential GDP because the money wage rate will

Which one of the following newspaper quotations describes a leftward shift of the LAS curve?

Which one of the following is a reason for the negative slope of the aggregate demand curve?

Use the figure below to answer the following questions. Figure 26.3.2 -Refer to Figure 26.3.2.If the economy of Mythlo automatically adjusts to long-run equilibrium,then

Use the figure below to answer the following questions. Figure 26.3.3 -Refer to Figure 26.3.3.In which of the graphs would we predict that eventually the price level will rise and real GDP will fall,all else remaining the same?

Use the figure below to answer the following questions. Figure 26.2.1 -Refer to Figure 26.2.1.Which graph illustrates what happens when the quantity of money decreases?

Use the figure below to answer the following questions. Figure 26.3.1 -Refer to Figure 26.3.1.If Econoworld automatically adjusts to a long-run equilibrium,then in the long-run macroeconomic equilibrium

Use the figure below to answer the following questions. Figure 26.3.2 -Refer to Figure 26.3.2.In Mythlo there is a difference between the ________ equilibrium real GDP and potential GDP of ________ billion.

Use the figure below to answer the following questions. Figure 26.3.2 -Refer to Figure 26.3.2.As the economy of Mythlo automatically adjusts to long-run equilibrium,the

Use the table below to answer the following questions. Table 26.3.1 -Refer to Table 26.3.1.Consider the economy represented in the table.The economy is in

Which one of the following variables is not held constant along a given aggregate demand curve?

We observe an increase in the price level and an increase in real GDP.Which of the following is a possible explanation?

Which one of the following newspaper quotations describes a movement along an SAS curve?

Disposable income is aggregate income

Potential GDP is the level of real GDP at which

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Use the figure below to answer the following questions. Figure 26.3.2 -Refer to Figure 26.3.2.In Mythlo there is a difference between the equilibrium real GDP and potential GDP of billion.