Question 1

Economic growth is smooth in:

Accepted Answer

A)  developed countries only. 
B)  both developed and developing countries. 
C)  developing countries only. 
D)  neither developed nor developing countries. 
A)  developed countries only. 
B)  both developed and developing countries. 
C)  developing countries only. 
D)  neither developed nor developing countries.

Question 2

From an initial equilibrium in the AD-AS model, an unexpected increase in money supply growth will cause inflation:

Accepted Answer

A)  and real growth to increase in the short run. 
B)  to increase and real growth to decrease in the short run. 
C)  to increase and real growth to remain unchanged in the short run. 
D)  and real growth to remain unchanged. 
A)  and real growth to increase in the short run. 
B)  to increase and real growth to decrease in the short run. 
C)  to increase and real growth to remain unchanged in the short run. 
D)  and real growth to remain unchanged.

Question 3

The Smoot-Hawley Tariff of 1930 delivered a:

Accepted Answer

A)  boost to aggregate demand in the form of higher velocity of money. 
B)  blow to aggregate demand in the form of lower money growth. 
C)  boost to aggregate demand in the form of new technology. 
D)  blow to aggregate demand by causing a collapse in world trade. 
A)  boost to aggregate demand in the form of higher velocity of money. 
B)  blow to aggregate demand in the form of lower money growth. 
C)  boost to aggregate demand in the form of new technology. 
D)  blow to aggregate demand by causing a collapse in world trade.

Question 4

Since 1980, shocks to rainfall are becoming less economically important for India's GDP. Which of the following explains why this is the case?

Accepted Answer

A)  Agriculture is becoming a smaller part of India's GDP. 
B)  India no longer produces agricultural items but has shifted all those resources to producing Bollywood movies. 
C)  Rainfall patterns have changed, causing fewer disruptions. 
D)  India learned to grow crops without water. 
A)  Agriculture is becoming a smaller part of India's GDP. 
B)  India no longer produces agricultural items but has shifted all those resources to producing Bollywood movies. 
C)  Rainfall patterns have changed, causing fewer disruptions. 
D)  India learned to grow crops without water.

Question 5

A temporary positive shock to spending growth will lead to an increase in:

Accepted Answer

A)  output in both the short run and the long run. 
B)  both output and prices in the short run, but only prices in the long run. 
C)  both prices and output in the short run, but only output in the long run. 
D)  output and prices in the short run, but no change in either in the long run. 
A)  output in both the short run and the long run. 
B)  both output and prices in the short run, but only prices in the long run. 
C)  both prices and output in the short run, but only output in the long run. 
D)  output and prices in the short run, but no change in either in the long run.

Question 6

In the graph of the AD-AS model, what is measured on the horizontal axis?

Accepted Answer

A)  the average price level 
B)  real GDP 
C)  the inflation rate 
D)  real GDP growth 
A)  the average price level 
B)  real GDP 
C)  the inflation rate 
D)  real GDP growth

Question 7

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes:

Accepted Answer

A)  a decrease of the inflation rate by 2 percentage points. 
B)  a decrease of the inflation rate by less than 2 percentage points. 
C)  an increase of the inflation rate by 2 percentage points. 
D)  an increase of the inflation rate by less than 2 percentage points. 
A)  a decrease of the inflation rate by 2 percentage points. 
B)  a decrease of the inflation rate by less than 2 percentage points. 
C)  an increase of the inflation rate by 2 percentage points. 
D)  an increase of the inflation rate by less than 2 percentage points.

Question 8

When a war breaks out in the Middle East and causes an oil shock, what makes the shock so costly to deal with?

Accepted Answer

A)  There is uncertainty on how long the war will last. 
B)  The shock is unexpected. 
C)  Many countries experience the shock at the same time. 
D)  Agricultural productivity plummets. 
A)  There is uncertainty on how long the war will last. 
B)  The shock is unexpected. 
C)  Many countries experience the shock at the same time. 
D)  Agricultural productivity plummets.

Question 9

How has the price of oil generally been related to recessions in the United States?

Accepted Answer

A)  Falling oil prices have produced a recession either in the next quarter or at the same time as the price fall. 
B)  Rising oil prices for at least two years have produced a recession. 
C)  If oil prices rise and fall within a year there will be a recession. 
D)  Rising oil prices have produced a recession either concurrently or quickly thereafter. 
A)  Falling oil prices have produced a recession either in the next quarter or at the same time as the price fall. 
B)  Rising oil prices for at least two years have produced a recession. 
C)  If oil prices rise and fall within a year there will be a recession. 
D)  Rising oil prices have produced a recession either concurrently or quickly thereafter.

Question 10

Deflation:

Accepted Answer

A)  lowers the real value of debts. 
B)  raises the real value of debts. 
C)  lowers the nominal value of debts. 
D)  raises the nominal value of debts. 
A)  lowers the real value of debts. 
B)  raises the real value of debts. 
C)  lowers the nominal value of debts. 
D)  raises the nominal value of debts.

Question 11

If a productive new technology arrives, the long-run aggregate supply curve will move:

Accepted Answer

A)  to the left. 
B)  to the right. 
C)  up. 
D)  down. 
A)  to the left. 
B)  to the right. 
C)  up. 
D)  down.

Question 12

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is:

Accepted Answer

A)  0%. 
B)  1%. 
C)  2%. 
D)  4%. 
A)  0%. 
B)  1%. 
C)  2%. 
D)  4%.

Question 13

In the basic model with AD and LRAS only, a shock to aggregate demand has an effect on the inflation rate but no effect on the real growth rate.

Accepted Answer

A) True 
 B)False

Question 14

In the AD-AS model, what happens to the economy in the short run when consumer spending decreases?

Accepted Answer

A)  Inflation is higher, and the real growth rate is higher. 
B)  Inflation is higher, and the real growth rate is lower. 
C)  Inflation is lower, and the real growth rate is higher. 
D)  Inflation is lower, and the real growth rate is lower. 
A)  Inflation is higher, and the real growth rate is higher. 
B)  Inflation is higher, and the real growth rate is lower. 
C)  Inflation is lower, and the real growth rate is higher. 
D)  Inflation is lower, and the real growth rate is lower.

Question 15

In response to a negative oil price shock, real GDP growth:

Accepted Answer

A)  rises and never returns to its initial level. 
B)  falls and never returns to its initial level. 
C)  first rises and then falls back to its initial level. 
D)  first falls and then rises back to its initial level. 
A)  rises and never returns to its initial level. 
B)  falls and never returns to its initial level. 
C)  first rises and then falls back to its initial level. 
D)  first falls and then rises back to its initial level.

Question 16

The economy's aggregate demand curve shows all combinations of _____ that are consistent with a specified rate of spending growth.

Accepted Answer

A)  inflation and the unemployment rate 
B)  inflation and real GDP growth 
C)  economic growth and the unemployment rate 
D)  the price level and real GDP 
A)  inflation and the unemployment rate 
B)  inflation and real GDP growth 
C)  economic growth and the unemployment rate 
D)  the price level and real GDP

Question 17

Which of the following is an explanation for why prices may be sticky in the short run?

Accepted Answer

A)  menu costs 
B)  price expectations 
C)  a vertical long-run aggregate supply curve 
D)  money illusion 
A)  menu costs 
B)  price expectations 
C)  a vertical long-run aggregate supply curve 
D)  money illusion

Question 18

During periods of real shocks, the long-run aggregate supply curve will remain the same in the short term and the long run.

Accepted Answer

A) True 
 B)False

Question 19

In the basic model that includes the AD and LRAS curves only, shocks to aggregate demand always cause changes in:

Accepted Answer

A)  real GDP growth only. 
B)  inflation only. 
C)  both real GDP growth and inflation. 
D)  neither real GDP growth nor inflation. 
A)  real GDP growth only. 
B)  inflation only. 
C)  both real GDP growth and inflation. 
D)  neither real GDP growth nor inflation.

Question 20

A positive shock to spending will shift the aggregate demand curve to the right and increase output in the short run, but not in the long run.

Accepted Answer

A) True 
 B)False

Exam 13: Business Fluctuations: Aggregate Demand and Supply

Economic growth is smooth in:

From an initial equilibrium in the AD-AS model, an unexpected increase in money supply growth will cause inflation:

The Smoot-Hawley Tariff of 1930 delivered a:

Since 1980, shocks to rainfall are becoming less economically important for India's GDP. Which of the following explains why this is the case?

A temporary positive shock to spending growth will lead to an increase in:

In the graph of the AD-AS model, what is measured on the horizontal axis?

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes:

When a war breaks out in the Middle East and causes an oil shock, what makes the shock so costly to deal with?

How has the price of oil generally been related to recessions in the United States?

Deflation:

If a productive new technology arrives, the long-run aggregate supply curve will move:

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is:

In the basic model with AD and LRAS only, a shock to aggregate demand has an effect on the inflation rate but no effect on the real growth rate.

In the AD-AS model, what happens to the economy in the short run when consumer spending decreases?

In response to a negative oil price shock, real GDP growth:

The economy's aggregate demand curve shows all combinations of _____ that are consistent with a specified rate of spending growth.

Which of the following is an explanation for why prices may be sticky in the short run?

During periods of real shocks, the long-run aggregate supply curve will remain the same in the short term and the long run.

In the basic model that includes the AD and LRAS curves only, shocks to aggregate demand always cause changes in:

A positive shock to spending will shift the aggregate demand curve to the right and increase output in the short run, but not in the long run.

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters