Question 1

Aggregate demand

Accepted Answer

A) measures the amount of a nation's goods and services that people are willing to buy. 
B) measures the amount of a nation's labour, capital, and technology that people are willing to buy. 
C) is the relationship between the quantity of real GDP demanded and the price level. 
D) increases when the price level falls. 
E) both C and D are correct. 
A) measures the amount of a nation's goods and services that people are willing to buy. 
B) measures the amount of a nation's labour, capital, and technology that people are willing to buy. 
C) is the relationship between the quantity of real GDP demanded and the price level. 
D) increases when the price level falls. 
E) both C and D are correct.

Question 2

When the actual unemployment rate is equal to the natural unemployment rate,then the

Accepted Answer

A) inflation rate must be zero. 
B) long-run aggregate supply curve is upward sloping. 
C) short-run aggregate supply curve is vertical. 
D) economy is operating at potential GDP. 
E) the money wage rate will rise. 
A) inflation rate must be zero. 
B) long-run aggregate supply curve is upward sloping. 
C) short-run aggregate supply curve is vertical. 
D) economy is operating at potential GDP. 
E) the money wage rate will rise.

Question 3

Which of the following news quotes best describes a Keynesian view of a recession?

Accepted Answer

A) "Rapid computerization is creating obsolete workers and higher unemployment." 
B) "The unexpectedly tight fiscal policy is raising spending and lowering unemployment." 
C) "The anti-inflationary policy of the Bank of Canada is increasing spending." 
D) "The cuts in government spending have helped lower consumer spending and created unemployment." 
E) "Businesses are very worried about future sales and have lowered their purchases of capital equipment." 
A) "Rapid computerization is creating obsolete workers and higher unemployment." 
B) "The unexpectedly tight fiscal policy is raising spending and lowering unemployment." 
C) "The anti-inflationary policy of the Bank of Canada is increasing spending." 
D) "The cuts in government spending have helped lower consumer spending and created unemployment." 
E) "Businesses are very worried about future sales and have lowered their purchases of capital equipment."

Question 4

A ________ macroeconomist believes that the economy is self-regulating and always at full employment.
A ________ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

Accepted Answer

A) Keynesian;new Keynesian 
B) classical;monetarist 
C) classical;Keynesian 
D) new classical;monetarist 
E) monetarist;classical 
A) Keynesian;new Keynesian 
B) classical;monetarist 
C) classical;Keynesian 
D) new classical;monetarist 
E) monetarist;classical

Question 5

Which of the following does not change short-run aggregate supply?

Accepted Answer

A) a change in the money wage rate 
B) technological change 
C) a change in the full-employment quantity of labour 
D) an increase in the quantity of capital 
E) a change in expected future profits 
A) a change in the money wage rate 
B) technological change 
C) a change in the full-employment quantity of labour 
D) an increase in the quantity of capital 
E) a change in expected future profits

Question 6

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

Accepted Answer

A) The money wage rate is sticky. 
B) Taxes should be kept low to avoid disincentive effects that decrease potential GDP. 
C) All recessions result from inappropriate monetary policy. 
D) Left alone, the economy rarely operates at full employment. 
E) Provided that the quantity of money is kept on a steady growth path, no active stabilization is needed to offset changes in aggregate demand. 
A) The money wage rate is sticky. 
B) Taxes should be kept low to avoid disincentive effects that decrease potential GDP. 
C) All recessions result from inappropriate monetary policy. 
D) Left alone, the economy rarely operates at full employment. 
E) Provided that the quantity of money is kept on a steady growth path, no active stabilization is needed to offset changes in aggregate demand.

Question 7

Which of the following situations illustrates how monetary policy can influence aggregate demand?

Accepted Answer

A) The Bank of Canada raises interest rates so people plan to buy less consumer durables.As a result, the aggregate demand curve shifts leftward. 
B) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases. 
C) The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases. 
D) The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease. 
E) Both A and D are examples of monetary policy. 
A) The Bank of Canada raises interest rates so people plan to buy less consumer durables.As a result, the aggregate demand curve shifts leftward. 
B) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases. 
C) The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases. 
D) The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease. 
E) Both A and D are examples of monetary policy.

Question 8

Classical macroeconomists recommend

Accepted Answer

A) policies that actively offset changes in long-run aggregate supply that result in negative economic growth. 
B) an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand. 
C) policies that actively offset changes in aggregate demand that bring recession. 
D) policies that minimize the disincentive effects of taxes on employment, investment, and technological change. 
E) all of the above. 
A) policies that actively offset changes in long-run aggregate supply that result in negative economic growth. 
B) an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand. 
C) policies that actively offset changes in aggregate demand that bring recession. 
D) policies that minimize the disincentive effects of taxes on employment, investment, and technological change. 
E) all of the above.

Question 9

Use the figure below to answer the following questions.
   
Figure 26.3.1
-Refer to Figure 26.3.1.As Econoworld 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 leftward. 
A) SAS curve shifts rightward. 
B) AD curve shifts rightward. 
C) SAS curve shifts leftward. 
D) AD curve shifts leftward. 
E) LAS curve shifts leftward.

Question 10

Complete the following sentence.Potential GDP

Accepted Answer

A) increases as the price level rises. 
B) is the level of real GDP when unemployment is zero. 
C) increases as the quantity of money in the economy increases. 
D) does not vary with the price level. 
E) never changes. 
A) increases as the price level rises. 
B) is the level of real GDP when unemployment is zero. 
C) increases as the quantity of money in the economy increases. 
D) does not vary with the price level. 
E) never changes.

Question 11

Use the figure below to answer the following questions.
   
Figure 26.3.1
-Refer to Figure 26.3.1.Consider statements (1)and (2)and select the correct answer.
(1) The actual unemployment rate exceeds the natural unemployment rate.
(2) Short-run aggregate supply will automatically shift leftward 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 if the money wage rate falls. 
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 if the money wage rate falls.

Question 12

Use the figure below to answer the following question.
   
Figure 26.3.4
-All of the following will raise the price level except

Accepted Answer

A) aggregate demand increases and short-run aggregate supply decreases. 
B) aggregate demand increases. 
C) short-run aggregate supply decreases. 
D) an increase in the quantity of capital. 
E) an increase in the quantity of money. 
A) aggregate demand increases and short-run aggregate supply decreases. 
B) aggregate demand increases. 
C) short-run aggregate supply decreases. 
D) an increase in the quantity of capital. 
E) an increase in the quantity of money.

Question 13

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 actual unemployment rate exceeds the natural unemployment rate in the short run.
(2) SAS automatically shifts 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 false;(2)is true 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 false;(2)is true if the LAS curve shifts rightward at the same time.

Question 14

The defining feature of the classical view of macroeconomics is that the economy is

Accepted Answer

A) rarely at full employment. 
B) driven by expectations called "animal spirits." 
C) self-regulating and always at full employment. 
D) constantly bombarded by shocks that arise from the uneven pace of technological change. 
E) the most significant influence on aggregate demand is expectations. 
A) rarely at full employment. 
B) driven by expectations called "animal spirits." 
C) self-regulating and always at full employment. 
D) constantly bombarded by shocks that arise from the uneven pace of technological change. 
E) the most significant influence on aggregate demand is expectations.

Question 15

The quantity of real GDP demanded is composed of the purchases of

Accepted Answer

A) households and net exporters only. 
B) firms, bondholders, and net exporters only. 
C) firms and governments only. 
D) consumers, firms, governments, and net exporters. 
E) consumers, firms, and governments only. 
A) households and net exporters only. 
B) firms, bondholders, and net exporters only. 
C) firms and governments only. 
D) consumers, firms, governments, and net exporters. 
E) consumers, firms, and governments only.

Question 16

Which one of the following variables can change without creating a shift of the aggregate demand curve?

Accepted Answer

A) the interest rate 
B) price level 
C) the tax rate 
D) expectations about inflation 
E) monetary policy 
A) the interest rate 
B) price level 
C) the tax rate 
D) expectations about inflation 
E) monetary policy

Question 17

When an economy is operating on its long-run aggregate supply curve,

Accepted Answer

A) the actual inflation rate is greater than the anticipated inflation rate. 
B) the actual unemployment rate equals the natural unemployment rate. 
C) unemployment will fall to an unusually low rate that is not likely to last into the future. 
D) real GDP demanded exceeds real GDP supplied. 
E) inflation must be positive. 
A) the actual inflation rate is greater than the anticipated inflation rate. 
B) the actual unemployment rate equals the natural unemployment rate. 
C) unemployment will fall to an unusually low rate that is not likely to last into the future. 
D) real GDP demanded exceeds real GDP supplied. 
E) inflation must be positive.

Question 18

Beginning at a long-run equilibrium,an increase in aggregate demand

Accepted Answer

A) increases the price level and in the long run increases real GDP. 
B) increases the price level and in the long run decreases real GDP. 
C) decreases the price level and in the long run increases real GDP. 
D) decreases the price level and in the long run decreases real GDP. 
E) increases the price level, but in the long run there is no change in real GDP. 
A) increases the price level and in the long run increases real GDP. 
B) increases the price level and in the long run decreases real GDP. 
C) decreases the price level and in the long run increases real GDP. 
D) decreases the price level and in the long run decreases real GDP. 
E) increases the price level, but in the long run there is no change in real GDP.

Question 19

Which one of the following newspaper quotations describes a movement along an 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 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 20

If real GDP is less than potential GDP,then the economy is

Accepted Answer

A) not in short-run equilibrium. 
B) in a full-employment equilibrium. 
C) in an above full-employment equilibrium. 
D) in a below full-employment equilibrium. 
E) in long-run equilibrium. 
A) not in short-run equilibrium. 
B) in a full-employment equilibrium. 
C) in an above full-employment equilibrium. 
D) in a below full-employment equilibrium. 
E) in long-run equilibrium.

Exam 26: Aggregate Supply and Aggregate Demand

Aggregate demand

When the actual unemployment rate is equal to the natural unemployment rate,then the

Which of the following news quotes best describes a Keynesian view of a recession?

A ________ macroeconomist believes that the economy is self-regulating and always at full employment. A ________ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

Which of the following does not change short-run aggregate supply?

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

Which of the following situations illustrates how monetary policy can influence aggregate demand?

Classical macroeconomists recommend

Use the figure below to answer the following questions. Figure 26.3.1 -Refer to Figure 26.3.1.As Econoworld automatically adjusts to long-run equilibrium,the

Complete the following sentence.Potential GDP

Use the figure below to answer the following question. Figure 26.3.4 -All of the following will raise the price level except

The defining feature of the classical view of macroeconomics is that the economy is

The quantity of real GDP demanded is composed of the purchases of

Which one of the following variables can change without creating a shift of the aggregate demand curve?

When an economy is operating on its long-run aggregate supply curve,

Beginning at a long-run equilibrium,an increase in aggregate demand

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

If real GDP is less than potential GDP,then the economy is

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

A macroeconomist believes that the economy is self-regulating and always at full employment. A macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.