Question 1

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

Accepted Answer

A) a decrease in net exports which will shift the aggregate demand curve to the right. 
B) an increase in net exports which will shift the aggregate demand curve to the right. 
C) a decrease in net exports which will shift the aggregate supply curve to the left. 
D) an increase in net exports which will shift the aggregate supply curve to the right. 
A) a decrease in net exports which will shift the aggregate demand curve to the right. 
B) an increase in net exports which will shift the aggregate demand curve to the right. 
C) a decrease in net exports which will shift the aggregate supply curve to the left. 
D) an increase in net exports which will shift the aggregate supply curve to the right. B

Question 2

The interest rate effect suggests that the negative slope of the aggregate demand curve results in part because changes in the price level affect

Accepted Answer

A) domestic purchases of foreign goods. 
B) the demand for money by households and firms. 
C) the real purchasing power of household wealth. 
D) the level of income. 
A) domestic purchases of foreign goods. 
B) the demand for money by households and firms. 
C) the real purchasing power of household wealth. 
D) the level of income. B

Question 3

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable.Which of the following is a reason for this?

Accepted Answer

A) Firms responded to the decline in output demanded by making quantity adjustments and not price adjustments. 
B) The short-run aggregate supply curve must have also shifted to the left. 
C) The short-run aggregate supply curve must have also shifted to the right. 
D) The short-run aggregate supply curve must be horizontal due to severe wage and price stickiness. 
A) Firms responded to the decline in output demanded by making quantity adjustments and not price adjustments. 
B) The short-run aggregate supply curve must have also shifted to the left. 
C) The short-run aggregate supply curve must have also shifted to the right. 
D) The short-run aggregate supply curve must be horizontal due to severe wage and price stickiness. B

Question 4

Figure 7-2
  
-Refer to Figure 7-2.Changes in aggregate demand from AD1 to either AD2 or AD3

Accepted Answer

A) will change nominal GDP but will not change real GDP in the long run. 
B) will change real GDP but will not change nominal GDP in the long run. 
C) will change the potential level of real GDP. 
D) will change the price level and real GDP. 
A) will change nominal GDP but will not change real GDP in the long run. 
B) will change real GDP but will not change nominal GDP in the long run. 
C) will change the potential level of real GDP. 
D) will change the price level and real GDP.

Question 5

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Accepted Answer

A) real GDP only. 
B) the price level only. 
C) real GDP and the price level. 
D) potential output. 
A) real GDP only. 
B) the price level only. 
C) real GDP and the price level. 
D) potential output.

Question 6

The use central bank policies to influence the level of economic activity is called

Accepted Answer

A) banking and finance policy. 
B) financial market policy. 
C) monetary policy. 
D) congressional policy. 
A) banking and finance policy. 
B) financial market policy. 
C) monetary policy. 
D) congressional policy.

Question 7

Figure 7-2
  
-Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP?

Accepted Answer

A) $6,250 billion 
B) $7,840 billion 
C) $9,000 billion 
D) cannot be determined from the information given 
A) $6,250 billion 
B) $7,840 billion 
C) $9,000 billion 
D) cannot be determined from the information given

Question 8

Figure 7-1
  
-Refer to Figure 7-1.What could have caused a movement from point C to point A?

Accepted Answer

A) an increase in the economy's general price level 
B) a decrease in investment demand due to lower expected sales 
C) a decrease in capital gains taxes 
D) an increase in money supply that lowers interest rate 
A) an increase in the economy's general price level 
B) a decrease in investment demand due to lower expected sales 
C) a decrease in capital gains taxes 
D) an increase in money supply that lowers interest rate

Question 9

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Accepted Answer

A) The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B) The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C) The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D) The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis. 
A) The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B) The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C) The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D) The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis.

Question 10

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 11

All the following explain price stickiness except

Accepted Answer

A) firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent. 
B) the more firms produce, the lower the average cost of production.Therefore, firms are willing not raise prices as long as they can sell more. 
C) firms may be concerned that consumers may be angered by price increases. 
D) firms may be concerned that their rivals may not match their price increases. 
A) firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent. 
B) the more firms produce, the lower the average cost of production.Therefore, firms are willing not raise prices as long as they can sell more. 
C) firms may be concerned that consumers may be angered by price increases. 
D) firms may be concerned that their rivals may not match their price increases.

Question 12

The short run in macroeconomic analysis is a period

Accepted Answer

A) in which wages and some other prices do not respond to changes in economic conditions. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) of less than 12 months. 
D) in which all macroeconomic variables are fixed. 
A) in which wages and some other prices do not respond to changes in economic conditions. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) of less than 12 months. 
D) in which all macroeconomic variables are fixed.

Question 13

Figure 7-2
  
-Refer to Figure 7-2.Based on the figure, we can conclude that

Accepted Answer

A) in the short run, the economy will always achieve full-employment equilibrium. 
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level. 
C) flexible wages and prices are irrelevant since the LRAS curve is vertical. 
D) in the long run, the aggregate demand curve determines the potential output level. 
A) in the short run, the economy will always achieve full-employment equilibrium. 
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level. 
C) flexible wages and prices are irrelevant since the LRAS curve is vertical. 
D) in the long run, the aggregate demand curve determines the potential output level.

Question 14

Long-run aggregate supply corresponds to the level of potential output.

Accepted Answer

A) True 
 B)False

Question 15

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Accepted Answer

A) True 
 B)False

Question 16

The rise and fall of real GDP over the course of the business cycle suggests that

Accepted Answer

A) the economy is always at full employment. 
B) the economy may not always be in long-run equilibrium. 
C) the economy is always at its potential output level. 
D) wage and price stickiness ensures that the economy moves from a peak to a trough. 
A) the economy is always at full employment. 
B) the economy may not always be in long-run equilibrium. 
C) the economy is always at its potential output level. 
D) wage and price stickiness ensures that the economy moves from a peak to a trough.

Question 17

According to the wealth effect, if the average price level rises, the value of consumers'

Accepted Answer

A) real wealth, nominal wealth, and consumption spending fall. 
B) nominal wealth and consumption spending fall. 
C) real wealth and consumption spending fall. 
D) feel poorer and will save more. 
A) real wealth, nominal wealth, and consumption spending fall. 
B) nominal wealth and consumption spending fall. 
C) real wealth and consumption spending fall. 
D) feel poorer and will save more.

Question 18

All else constant, a lower price level

Accepted Answer

A) increases imports and decreases exports, resulting in a downward movement along the economy's aggregate demand curve. 
B) decreases imports and increases exports, resulting in an upward movement along the economy's aggregate demand curve. 
C) increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve. 
D) decreases imports and increases exports, resulting in a downward movement along the economy's aggregate demand curve. 
A) increases imports and decreases exports, resulting in a downward movement along the economy's aggregate demand curve. 
B) decreases imports and increases exports, resulting in an upward movement along the economy's aggregate demand curve. 
C) increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve. 
D) decreases imports and increases exports, resulting in a downward movement along the economy's aggregate demand curve.

Question 19

In the long run, the price level is determined by

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) the government. 
D) money supply. 
A) aggregate demand. 
B) aggregate supply. 
C) the government. 
D) money supply.

Question 20

A change in the price level, all other things unchanged, causes

Accepted Answer

A) a movement along the aggregate demand curve. 
B) a shift of the aggregate demand curve. 
C) both a movement along the aggregate demand curve and a shift in the curve. 
D) no change in the value of assets held in the form of money. 
A) a movement along the aggregate demand curve. 
B) a shift of the aggregate demand curve. 
C) both a movement along the aggregate demand curve and a shift in the curve. 
D) no change in the value of assets held in the form of money.

Exam 22: Aggregate Demand and Aggregate Supply

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

The interest rate effect suggests that the negative slope of the aggregate demand curve results in part because changes in the price level affect

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable.Which of the following is a reason for this?

Figure 7-2 -Refer to Figure 7-2.Changes in aggregate demand from AD1 to either AD2 or AD3

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

The use central bank policies to influence the level of economic activity is called

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP?

Figure 7-1 -Refer to Figure 7-1.What could have caused a movement from point C to point A?

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

All the following explain price stickiness except

The short run in macroeconomic analysis is a period

Figure 7-2 -Refer to Figure 7-2.Based on the figure, we can conclude that

Long-run aggregate supply corresponds to the level of potential output.

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

The rise and fall of real GDP over the course of the business cycle suggests that

According to the wealth effect, if the average price level rises, the value of consumers'

All else constant, a lower price level

In the long run, the price level is determined by

A change in the price level, all other things unchanged, causes

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

Figure 7-2 -Refer to Figure 7-2.Changes in aggregate demand from AD₁ to either AD₂ or AD₃