Question 1

As a result of a sharp decrease in aggregate demand between 1929 and 1933, real GDP was _____ its 1929 level.

Accepted Answer

A)  29% below 
B)  100% below 
C)  29% above 
D)  50% above 
A)  29% below 
B)  100% below 
C)  29% above 
D)  50% above

Question 2

The aggregate demand curve shows a negative relationship between the price level and the quantity of aggregate output demanded.

Accepted Answer

A) True 
 B)False

Question 3

The relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world is represented by the _____ demand.

Accepted Answer

A)  market 
B)  surplus 
C)  aggregate 
D)  simple 
A)  market 
B)  surplus 
C)  aggregate 
D)  simple

Question 4

Use the following to answer questions:
Figure: AD-AS Model II  
-(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _____ curve will shift to the _____.

Accepted Answer

A)  LRAS; left 
B)  LRAS; right 
C)  AD; right 
D)  AD; left 
A)  LRAS; left 
B)  LRAS; right 
C)  AD; right 
D)  AD; left

Question 5

The long-run aggregate supply curve is vertical because in the long run:

Accepted Answer

A)  technological progress outpaces raises in nominal wages. 
B)  all factors of production increase. 
C)  the price of labor is flexible, while the price of physical capital is fixed. 
D)  all prices are flexible. 
A)  technological progress outpaces raises in nominal wages. 
B)  all factors of production increase. 
C)  the price of labor is flexible, while the price of physical capital is fixed. 
D)  all prices are flexible.

Question 6

Use the following to answer questions:
Figure: Policy Alternatives  
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a), it is in:

Accepted Answer

A)  full employment. 
B)  an inflationary gap. 
C)  a liquidity trap. 
D)  stagflation. 
A)  full employment. 
B)  an inflationary gap. 
C)  a liquidity trap. 
D)  stagflation.

Question 7

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

Accepted Answer

A) True 
 B)False

Question 8

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

Accepted Answer

A)  demand; aggregate demand; right 
B)  supply; aggregate demand; left 
C)  supply; short-run aggregate supply; left 
D)  demand; long-run aggregate supply; left 
A)  demand; aggregate demand; right 
B)  supply; aggregate demand; left 
C)  supply; short-run aggregate supply; left 
D)  demand; long-run aggregate supply; left

Question 9

In the long run, the economy is:

Accepted Answer

A)  self-correcting, as commodity prices rise during recessionary gaps and fall during inflationary gaps to move the economy to long-run equilibrium. 
B)  self-correcting, as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment. 
C)  fluctuating, as nominal wages rise and fall during short-run economic fluctuations. 
D)  self-correcting, as nominal wages rise during recessionary gaps and fall during inflationary gaps to move the economy to long-run equilibrium. 
A)  self-correcting, as commodity prices rise during recessionary gaps and fall during inflationary gaps to move the economy to long-run equilibrium. 
B)  self-correcting, as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment. 
C)  fluctuating, as nominal wages rise and fall during short-run economic fluctuations. 
D)  self-correcting, as nominal wages rise during recessionary gaps and fall during inflationary gaps to move the economy to long-run equilibrium.

Question 10

A negative short-run supply shock _____ aggregate output and _____ the aggregate price level.

Accepted Answer

A)  reduces; increases 
B)  increases; reduces 
C)  reduces; reduces 
D)  increases; increases 
A)  reduces; increases 
B)  increases; reduces 
C)  reduces; reduces 
D)  increases; increases

Question 11

Use the following to answer questions:
Figure: Policy Alternatives  
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a) and the government decreases taxes, the result will likely be a(n):

Accepted Answer

A)  increase in unemployment. 
B)  decrease in interest rates. 
C)  decrease in aggregate demand. 
D)  increase in aggregate demand. 
A)  increase in unemployment. 
B)  decrease in interest rates. 
C)  decrease in aggregate demand. 
D)  increase in aggregate demand.

Question 12

If the Fed increases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

Accepted Answer

A)  decrease; increases; right 
B)  increase; increases; right 
C)  decrease; increases; left 
D)  increase; decreases; left 
A)  decrease; increases; right 
B)  increase; increases; right 
C)  decrease; increases; left 
D)  increase; decreases; left

Question 13

The short-run aggregate supply curve would NOT shift to the left as a result of a(n):

Accepted Answer

A)  decrease in productivity. 
B)  increase in nominal wages. 
C)  increase in interest rates. 
D)  increase in the price of commodities used for production. 
A)  decrease in productivity. 
B)  increase in nominal wages. 
C)  increase in interest rates. 
D)  increase in the price of commodities used for production.

Question 14

The point at which the long-run aggregate supply curve touches the x-axis is known as:

Accepted Answer

A)  potential output. 
B)  the accelerator point. 
C)  the multiplier point. 
D)  the self-correcting economy point. 
A)  potential output. 
B)  the accelerator point. 
C)  the multiplier point. 
D)  the self-correcting economy point.

Question 15

In the income-expenditure model, if the price level increases, the wealth and interest rate effects will decrease planned expenditures.

Accepted Answer

A) True 
 B)False

Question 16

In the long run, as the economy self-corrects, a decrease in aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to _____.

Accepted Answer

A)  rise; increase 
B)  fall; decrease 
C)  rise; remain stable 
D)  fall; remain stable 
A)  rise; increase 
B)  fall; decrease 
C)  rise; remain stable 
D)  fall; remain stable

Question 17

An aggregate output level lower than potential output means there will be:

Accepted Answer

A)  high interest rates. 
B)  high inflation. 
C)  low unemployment. 
D)  high unemployment. 
A)  high interest rates. 
B)  high inflation. 
C)  low unemployment. 
D)  high unemployment.

Question 18

A negative demand shock can cause:

Accepted Answer

A)  a liquidity trap. 
B)  crowding out. 
C)  a recessionary gap. 
D)  an inflationary gap. 
A)  a liquidity trap. 
B)  crowding out. 
C)  a recessionary gap. 
D)  an inflationary gap.

Question 19

If it costs Betsy $10 to bake a cake and she sells the cake for $25, her profit per unit (per cake) is $35.

Accepted Answer

A) True 
 B)False

Question 20

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

Accepted Answer

A)  productivity. 
B)  unemployment rate. 
C)  quantity of output demanded by households, businesses, the government, and the rest of the world. 
D)  quantity of output demanded by businesses only. 
A)  productivity. 
B)  unemployment rate. 
C)  quantity of output demanded by households, businesses, the government, and the rest of the world. 
D)  quantity of output demanded by businesses only.

As a result of a sharp decrease in aggregate demand between 1929 and 1933, real GDP was _____ its 1929 level.

The aggregate demand curve shows a negative relationship between the price level and the quantity of aggregate output demanded.

The relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world is represented by the _____ demand.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _ curve will shift to the _.

The long-run aggregate supply curve is vertical because in the long run:

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (a), it is in:

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

A natural disaster that destroys part of a country's infrastructure is a type of negative ___ shock and therefore shifts the _ curve to the ___.

In the long run, the economy is:

A negative short-run supply shock _ aggregate output and _ the aggregate price level.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (a) and the government decreases taxes, the result will likely be a(n):

If the Fed increases the quantity of money in circulation, interest rates ___, investment spending _, and the aggregate demand curve shifts to the ___.

The short-run aggregate supply curve would NOT shift to the left as a result of a(n):

The point at which the long-run aggregate supply curve touches the x-axis is known as:

In the income-expenditure model, if the price level increases, the wealth and interest rate effects will decrease planned expenditures.

In the long run, as the economy self-corrects, a decrease in aggregate demand, all other things unchanged, will cause the price level to _ and potential output to _.

An aggregate output level lower than potential output means there will be:

A negative demand shock can cause:

If it costs Betsy $10 to bake a cake and she sells the cake for $25, her profit per unit (per cake) is $35.

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 12: Aggregate Demand and Aggregate Supply

As a result of a sharp decrease in aggregate demand between 1929 and 1933, real GDP was _____ its 1929 level.

The aggregate demand curve shows a negative relationship between the price level and the quantity of aggregate output demanded.

The relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world is represented by the _____ demand.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _____ curve will shift to the _____.

The long-run aggregate supply curve is vertical because in the long run:

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a), it is in:

In long-run macroeconomic equilibrium, actual aggregate output equals potential output.

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

In the long run, the economy is:

A negative short-run supply shock _____ aggregate output and _____ the aggregate price level.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a) and the government decreases taxes, the result will likely be a(n):

If the Fed increases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.

The short-run aggregate supply curve would NOT shift to the left as a result of a(n):

The point at which the long-run aggregate supply curve touches the x-axis is known as:

In the income-expenditure model, if the price level increases, the wealth and interest rate effects will decrease planned expenditures.

In the long run, as the economy self-corrects, a decrease in aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to _____.

An aggregate output level lower than potential output means there will be:

A negative demand shock can cause:

If it costs Betsy $10 to bake a cake and she sells the cake for $25, her profit per unit (per cake) is $35.

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _ curve will shift to the _.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (a), it is in:

A natural disaster that destroys part of a country's infrastructure is a type of negative ___ shock and therefore shifts the _ curve to the ___.

A negative short-run supply shock _ aggregate output and _ the aggregate price level.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (a) and the government decreases taxes, the result will likely be a(n):

If the Fed increases the quantity of money in circulation, interest rates ___, investment spending _, and the aggregate demand curve shifts to the ___.

In the long run, as the economy self-corrects, a decrease in aggregate demand, all other things unchanged, will cause the price level to _ and potential output to _.