Question 1

The wealth effect is reflected in:

Accepted Answer

A)  increases in interest rates to savers. 
B)  the upward slope in aggregate supply. 
C)  the upward slope in aggregate demand. 
D)  the downward slope in aggregate demand. 
A)  increases in interest rates to savers. 
B)  the upward slope in aggregate supply. 
C)  the upward slope in aggregate demand. 
D)  the downward slope in aggregate demand.

Question 2

When the economy is on the short-run aggregate supply curve and to the left of the long-run aggregate supply curve, actual aggregate output will eventually equal potential output as _____ fall(s) and the _____ aggregate _____ curve shifts to the _____.

Accepted Answer

A)  nominal wages; long-run; supply; left 
B)  the aggregate price level; long-run; supply; left 
C)  nominal wages; short-run; supply; right 
D)  the aggregate price level; short-run; demand; right 
A)  nominal wages; long-run; supply; left 
B)  the aggregate price level; long-run; supply; left 
C)  nominal wages; short-run; supply; right 
D)  the aggregate price level; short-run; demand; right

Question 3

Suppose that consumer expectations improve. The aggregate demand curve will undergo a:

Accepted Answer

A)  shift to the left. 
B)  movement upward. 
C)  shift to the right. 
D)  movement downward. 
A)  shift to the left. 
B)  movement upward. 
C)  shift to the right. 
D)  movement downward.

Question 4

If all prices, including the nominal wage rate, double in the long run, then aggregate output supplied will:

Accepted Answer

A)  double. 
B)  rise. 
C)  fall. 
D)  remain unchanged. 
A)  double. 
B)  rise. 
C)  fall. 
D)  remain unchanged.

Question 5

The wealth effect suggests:

Accepted Answer

A)  a positive relationship between the price level and consumption spending. 
B)  that price level changes do not affect real wealth. 
C)  a negative relationship between the price level and consumption spending. 
D)  that when the price level increases, the real value of money increases also. 
A)  a positive relationship between the price level and consumption spending. 
B)  that price level changes do not affect real wealth. 
C)  a negative relationship between the price level and consumption spending. 
D)  that when the price level increases, the real value of money increases also.

Question 6

The level of output that the economy would produce if all prices, including nominal wages, were fully flexible is called:

Accepted Answer

A)  real GDP. 
B)  Keynesian GDP. 
C)  structural GDP. 
D)  potential GDP. 
A)  real GDP. 
B)  Keynesian GDP. 
C)  structural GDP. 
D)  potential GDP.

Question 7

The point where the long-run aggregate supply curve intercepts the horizontal axis is:

Accepted Answer

A)  the point that reflects the economy's actual output. 
B)  the economy's potential output. 
C)  the level of real GDP the economy would produce if all prices were flexible and wages were fixed. 
D)  impossible to attain. 
A)  the point that reflects the economy's actual output. 
B)  the economy's potential output. 
C)  the level of real GDP the economy would produce if all prices were flexible and wages were fixed. 
D)  impossible to attain.

Question 8

In the long run, as the economy self-corrects, an increase in aggregate demand 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 9

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)  a recessionary gap. 
B)  an inflationary gap. 
C)  simultaneous short-run and long-run equilibrium. 
D)  full employment. 
A)  a recessionary gap. 
B)  an inflationary gap. 
C)  simultaneous short-run and long-run equilibrium. 
D)  full employment.

Question 10

During the Great Depression, the United States moved to the _____ along its _____ curve.

Accepted Answer

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

Question 11

The short-run aggregate supply curve slopes upward because of:

Accepted Answer

A)  wage and price stickiness. 
B)  wage and price flexibility. 
C)  increasing technology. 
D)  a reduction in resource availability at higher price levels. 
A)  wage and price stickiness. 
B)  wage and price flexibility. 
C)  increasing technology. 
D)  a reduction in resource availability at higher price levels.

Question 12

Other things equal, in the income-expenditure model, a decrease in the price level will cause the planned aggregate expenditure curve to shift downward, resulting in a lower level of real GDP.

Accepted Answer

A) True 
 B)False

Question 13

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

Accepted Answer

A)  -90 
B)  -110 
C)  -10 
D)  10 
A)  -90 
B)  -110 
C)  -10 
D)  10

Question 14

Between 1929 and 1933, the U.S. economy moved upward from left to right along its short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 15

According to the interest rate effect, an increase in the price level causes people to _____ their money holdings, which _____ interest rates and _____ investment spending.

Accepted Answer

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

Question 16

When the price level increases, firms in imperfectly competitive markets usually have a decrease in profit per unit and decrease output.

Accepted Answer

A) True 
 B)False

Question 17

A general increase in wages will result primarily in the _____ curve shifting to the _____.

Accepted Answer

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

Question 18

A recessionary gap occurs when:

Accepted Answer

A)  potential output is below aggregate output. 
B)  potential output is receding. 
C)  aggregate output is below potential output. 
D)  aggregate output is above potential output. 
A)  potential output is below aggregate output. 
B)  potential output is receding. 
C)  aggregate output is below potential output. 
D)  aggregate output is above potential output.

Question 19

Which factor is one of the reasons that the aggregate demand curve slopes downward?

Accepted Answer

A)  the paradox of thrift 
B)  the interest rate effect 
C)  the substitution effect 
D)  the income effect 
A)  the paradox of thrift 
B)  the interest rate effect 
C)  the substitution effect 
D)  the income effect

Question 20

Use the following to answer questions:
Figure: An Increase in Aggregate Demand  
-(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. The short-run equilibrium at Y2 and P2:

Accepted Answer

A)  exerts pressure for nominal wages to fall as workers seek to restore lost purchasing power. 
B)  exerts pressure for prices to fall, since real GDP exceeds potential real GDP. 
C)  results in a recessionary gap. 
D)  results in an inflationary gap. 
A)  exerts pressure for nominal wages to fall as workers seek to restore lost purchasing power. 
B)  exerts pressure for prices to fall, since real GDP exceeds potential real GDP. 
C)  results in a recessionary gap. 
D)  results in an inflationary gap.

The wealth effect is reflected in:

When the economy is on the short-run aggregate supply curve and to the left of the long-run aggregate supply curve, actual aggregate output will eventually equal potential output as ___ fall(s) and the _ aggregate _ curve shifts to the ___.

Suppose that consumer expectations improve. The aggregate demand curve will undergo a:

If all prices, including the nominal wage rate, double in the long run, then aggregate output supplied will:

The wealth effect suggests:

The level of output that the economy would produce if all prices, including nominal wages, were fully flexible is called:

The point where the long-run aggregate supply curve intercepts the horizontal axis is:

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _ and potential output to _.

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:

During the Great Depression, the United States moved to the _ along its _ curve.

The short-run aggregate supply curve slopes upward because of:

Other things equal, in the income-expenditure model, a decrease in the price level will cause the planned aggregate expenditure curve to shift downward, resulting in a lower level of real GDP.

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

Between 1929 and 1933, the U.S. economy moved upward from left to right along its short-run aggregate supply curve.

According to the interest rate effect, an increase in the price level causes people to ___ their money holdings, which _ interest rates and ___ investment spending.

When the price level increases, firms in imperfectly competitive markets usually have a decrease in profit per unit and decrease output.

A general increase in wages will result primarily in the _ curve shifting to the _.

A recessionary gap occurs when:

Which factor is one of the reasons that the aggregate demand curve slopes downward?

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. The short-run equilibrium at Y₂ and P₂:

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

The wealth effect is reflected in:

When the economy is on the short-run aggregate supply curve and to the left of the long-run aggregate supply curve, actual aggregate output will eventually equal potential output as _____ fall(s) and the _____ aggregate _____ curve shifts to the _____.

Suppose that consumer expectations improve. The aggregate demand curve will undergo a:

If all prices, including the nominal wage rate, double in the long run, then aggregate output supplied will:

The wealth effect suggests:

The level of output that the economy would produce if all prices, including nominal wages, were fully flexible is called:

The point where the long-run aggregate supply curve intercepts the horizontal axis is:

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____.

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:

During the Great Depression, the United States moved to the _____ along its _____ curve.

The short-run aggregate supply curve slopes upward because of:

Other things equal, in the income-expenditure model, a decrease in the price level will cause the planned aggregate expenditure curve to shift downward, resulting in a lower level of real GDP.

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

Between 1929 and 1933, the U.S. economy moved upward from left to right along its short-run aggregate supply curve.

According to the interest rate effect, an increase in the price level causes people to _____ their money holdings, which _____ interest rates and _____ investment spending.

When the price level increases, firms in imperfectly competitive markets usually have a decrease in profit per unit and decrease output.

A general increase in wages will result primarily in the _____ curve shifting to the _____.

A recessionary gap occurs when:

Which factor is one of the reasons that the aggregate demand curve slopes downward?

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. The short-run equilibrium at Y2 and P2:

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

When the economy is on the short-run aggregate supply curve and to the left of the long-run aggregate supply curve, actual aggregate output will eventually equal potential output as ___ fall(s) and the _ aggregate _ curve shifts to the ___.

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _ and potential output to _.

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:

During the Great Depression, the United States moved to the _ along its _ curve.

According to the interest rate effect, an increase in the price level causes people to ___ their money holdings, which _ interest rates and ___ investment spending.

A general increase in wages will result primarily in the _ curve shifting to the _.

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. The short-run equilibrium at Y₂ and P₂: