Question 1

Potential output is the level of real GDP that:

Accepted Answer

A)  occurs when the economy has only cyclical unemployment. 
B)  the economy would produce if all prices, including nominal wages, were fully flexible. 
C)  occurs when the actual rate of unemployment is zero. 
D)  the economy would produce if all prices, including nominal wages, were sticky. 
A)  occurs when the economy has only cyclical unemployment. 
B)  the economy would produce if all prices, including nominal wages, were fully flexible. 
C)  occurs when the actual rate of unemployment is zero. 
D)  the economy would produce if all prices, including nominal wages, were sticky.

Question 2

In the long run, the aggregate price level has:

Accepted Answer

A)  no effect on the quantity of aggregate output. 
B)  a positive effect on the quantity of aggregate output. 
C)  a negative effect on the quantity of aggregate output. 
D)  an effect on aggregate output but none on employment. 
A)  no effect on the quantity of aggregate output. 
B)  a positive effect on the quantity of aggregate output. 
C)  a negative effect on the quantity of aggregate output. 
D)  an effect on aggregate output but none on employment.

Question 3

According to the short-run aggregate supply curve, when the _____ rises, the quantity of aggregate output _____ rises.

Accepted Answer

A)  profit per unit; demanded 
B)  aggregate price level; supplied 
C)  aggregate price level; demanded 
D)  interest rate; supplied 
A)  profit per unit; demanded 
B)  aggregate price level; supplied 
C)  aggregate price level; demanded 
D)  interest rate; supplied

Question 4

Use the following to answer questions:
Figure: Policy Alternatives  
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:

Accepted Answer

A)  real interest rates will fall, which will shift SRAS rightward. 
B)  lower wages will result in a gradual shift from SRAS1 to SRAS2. 
C)  long-run equilibrium will be established at YP and P3. 
D)  the aggregate demand curve will shift leftward. 
A)  real interest rates will fall, which will shift SRAS rightward. 
B)  lower wages will result in a gradual shift from SRAS1 to SRAS2. 
C)  long-run equilibrium will be established at YP and P3. 
D)  the aggregate demand curve will shift leftward.

Question 5

Potential output is the level of real GDP that the economy would produce if all prices, including nominal wages, were inflexible.

Accepted Answer

A) True 
 B)False

Question 6

A recessionary gap can be closed by _____ wages that shifts the _____.

Accepted Answer

A)  falling; SRAS curve rightward 
B)  falling; LRAS curve rightward 
C)  falling; SRAS curve leftward 
D)  rising; SRAS curve rightward 
A)  falling; SRAS curve rightward 
B)  falling; LRAS curve rightward 
C)  falling; SRAS curve leftward 
D)  rising; SRAS curve rightward

Question 7

Changes in short-run aggregate supply can be caused by changes in:

Accepted Answer

A)  wealth. 
B)  commodity prices. 
C)  government spending. 
D)  the price level. 
A)  wealth. 
B)  commodity prices. 
C)  government spending. 
D)  the price level.

Question 8

The aggregate demand curve is downward sloping because of:

Accepted Answer

A)  the inverse relationship between price and quantity demanded. 
B)  changes in expectation of future prices. 
C)  unexpected changes in commodity prices. 
D)  the wealth effect of a change in aggregate price level. 
A)  the inverse relationship between price and quantity demanded. 
B)  changes in expectation of future prices. 
C)  unexpected changes in commodity prices. 
D)  the wealth effect of a change in aggregate price level.

Question 9

Aggregate demand will NOT increase when:

Accepted Answer

A)  household wealth rises but prices are constant. 
B)  government purchases of goods rise. 
C)  the quantity of money increases. 
D)  interest rates increase. 
A)  household wealth rises but prices are constant. 
B)  government purchases of goods rise. 
C)  the quantity of money increases. 
D)  interest rates increase.

Question 10

The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

Accepted Answer

A)  potential output. 
B)  price level. 
C)  consumption and investment spending. 
D)  government purchases. 
A)  potential output. 
B)  price level. 
C)  consumption and investment spending. 
D)  government purchases.

Question 11

Because of the multiplier effect, an increase in government spending of $200 billion will increase aggregate output by less than that amount.

Accepted Answer

A) True 
 B)False

Question 12

During the Great Depression, the United States underwent a movement _____ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _____ shift in the short-run aggregate supply curve.

Accepted Answer

A)  down; leftward 
B)  up; leftward 
C)  up; rightward 
D)  down; rightward 
A)  down; leftward 
B)  up; leftward 
C)  up; rightward 
D)  down; rightward

Question 13

An inflationary gap:

Accepted Answer

A)  is generally regarded as desirable, especially by people living on a fixed income. 
B)  means that the economy is operating beyond its potential output. 
C)  means that there are pressures for wages to fall. 
D)  means that SRAS will soon shift rightward. 
A)  is generally regarded as desirable, especially by people living on a fixed income. 
B)  means that the economy is operating beyond its potential output. 
C)  means that there are pressures for wages to fall. 
D)  means that SRAS will soon shift rightward.

Question 14

As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n):

Accepted Answer

A)  increase in short-run aggregate supply. 
B)  decrease in the quantity of aggregate output supplied in the short run. 
C)  increase in aggregate demand. 
D)  decrease in the quantity of aggregate output demanded. 
A)  increase in short-run aggregate supply. 
B)  decrease in the quantity of aggregate output supplied in the short run. 
C)  increase in aggregate demand. 
D)  decrease in the quantity of aggregate output demanded.

Question 15

If the price level rises by 10%, the purchasing power of $10,000 will:

Accepted Answer

A)  increase to $11,000. 
B)  decrease to $9,000. 
C)  decrease to $1,000. 
D)  remain constant. 
A)  increase to $11,000. 
B)  decrease to $9,000. 
C)  decrease to $1,000. 
D)  remain constant.

Question 16

Use the following to answer questions:
Figure: AD-AS Model II  
-(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If commodity prices rise, the _____ curve will shift to the _____.

Accepted Answer

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

Question 17

In the long run, inflationary and recessionary gaps are self-correcting because eventually:

Accepted Answer

A)  nominal wages rise to close an inflationary gap or fall to close a recessionary gap. 
B)  the government applies the right combination of fiscal and monetary policies. 
C)  the multiplier compensates for the negative supply or demand shocks. 
D)  nominal wages rise to close a recessionary gap and fall to close an inflationary gap. 
A)  nominal wages rise to close an inflationary gap or fall to close a recessionary gap. 
B)  the government applies the right combination of fiscal and monetary policies. 
C)  the multiplier compensates for the negative supply or demand shocks. 
D)  nominal wages rise to close a recessionary gap and fall to close an inflationary gap.

Question 18

An increase in the price of imported oil leads to a _____ shock.

Accepted Answer

A)  positive supply 
B)  negative supply 
C)  positive demand 
D)  negative demand 
A)  positive supply 
B)  negative supply 
C)  positive demand 
D)  negative demand

Question 19

If the price level decreases by 20%, the purchasing power of $1,000 will increase to $1,200.

Accepted Answer

A) True 
 B)False

Question 20

If membership in labor unions falls, production costs will:

Accepted Answer

A)  increase, and SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level. 
B)  fall, there will be a downward movement along SRAS, equilibrium GDP will increase, and aggregate price level will fall. 
C)  not change and AD will shift to the right, increasing equilibrium GDP and aggregate price level. 
D)  fall and SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level. 
A)  increase, and SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level. 
B)  fall, there will be a downward movement along SRAS, equilibrium GDP will increase, and aggregate price level will fall. 
C)  not change and AD will shift to the right, increasing equilibrium GDP and aggregate price level. 
D)  fall and SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.

Potential output is the level of real GDP that:

In the long run, the aggregate price level has:

According to the short-run aggregate supply curve, when the _ rises, the quantity of aggregate output _ rises.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD₁ and SRAS₁. If the economy is left to correct itself:

Potential output is the level of real GDP that the economy would produce if all prices, including nominal wages, were inflexible.

A recessionary gap can be closed by _ wages that shifts the _.

Changes in short-run aggregate supply can be caused by changes in:

The aggregate demand curve is downward sloping because of:

Aggregate demand will NOT increase when:

The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

Because of the multiplier effect, an increase in government spending of $200 billion will increase aggregate output by less than that amount.

During the Great Depression, the United States underwent a movement _ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _ shift in the short-run aggregate supply curve.

An inflationary gap:

As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n):

If the price level rises by 10%, the purchasing power of $10,000 will:

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If commodity prices rise, the _ curve will shift to the _.

In the long run, inflationary and recessionary gaps are self-correcting because eventually:

An increase in the price of imported oil leads to a _____ shock.

If the price level decreases by 20%, the purchasing power of $1,000 will increase to $1,200.

If membership in labor unions falls, production costs will:

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

Potential output is the level of real GDP that:

In the long run, the aggregate price level has:

According to the short-run aggregate supply curve, when the _____ rises, the quantity of aggregate output _____ rises.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:

Potential output is the level of real GDP that the economy would produce if all prices, including nominal wages, were inflexible.

A recessionary gap can be closed by _____ wages that shifts the _____.

Changes in short-run aggregate supply can be caused by changes in:

The aggregate demand curve is downward sloping because of:

Aggregate demand will NOT increase when:

The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

Because of the multiplier effect, an increase in government spending of $200 billion will increase aggregate output by less than that amount.

During the Great Depression, the United States underwent a movement _____ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _____ shift in the short-run aggregate supply curve.

An inflationary gap:

As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n):

If the price level rises by 10%, the purchasing power of $10,000 will:

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If commodity prices rise, the _____ curve will shift to the _____.

In the long run, inflationary and recessionary gaps are self-correcting because eventually:

An increase in the price of imported oil leads to a _____ shock.

If the price level decreases by 20%, the purchasing power of $1,000 will increase to $1,200.

If membership in labor unions falls, production costs will:

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

According to the short-run aggregate supply curve, when the _ rises, the quantity of aggregate output _ rises.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD₁ and SRAS₁. If the economy is left to correct itself:

A recessionary gap can be closed by _ wages that shifts the _.

During the Great Depression, the United States underwent a movement _ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _ shift in the short-run aggregate supply curve.

Use the following to answer questions: Figure: AD-AS Model II -(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. If commodity prices rise, the _ curve will shift to the _.