Question 1

The short-run aggregate supply curve slopes upward as a result of the real balance effect, the interest rate effect, and the international trade effect.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 8-1
  
-Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If foreign real national income rises, at which point is the economy most likely to end up in the short run?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) A change in foreign real national income would have no impact on the domestic economy. 
A) A 
B) B 
C) C 
D) D 
E) A change in foreign real national income would have no impact on the domestic economy.

Question 3

Assume that the economy is currently in short-run equilibrium, then the dollar appreciates in the foreign exchange market. Describe the correct sequence of events that happen as the economy adjusts to a new short-run equilibrium (be sure to state what the impact would be on the price level and Real GDP).

Accepted Answer

As the dollar appreciates, foreign goods

Question 4

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

Accepted Answer

A) rise; right 
B) rise; left 
C) decline; right 
D) decline; left 
A) rise; right 
B) rise; left 
C) decline; right 
D) decline; left

Question 5

Exhibit 8-1
  
-Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up in the short run?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 6

Which of the following is not a factor that can shift the short-run aggregate supply curve?

Accepted Answer

A) changes in the wage rate 
B) changes in the price of non-labor inputs such as oil 
C) changes in labor productivity 
D) a severe drought which extensively damages grain crops 
E) none of the above 
A) changes in the wage rate 
B) changes in the price of non-labor inputs such as oil 
C) changes in labor productivity 
D) a severe drought which extensively damages grain crops 
E) none of the above

Question 7

A fall in the price level changes the purchasing power of money. This is relevant to the __________ effect.

Accepted Answer

A) international trade 
B) real balance 
C) aggregate demand 
D) interest rate 
E) aggregate supply 
A) international trade 
B) real balance 
C) aggregate demand 
D) interest rate 
E) aggregate supply

Question 8

Which of the following statements is false?

Accepted Answer

A) If the SRAS curve shifts rightward, the price level falls in the short run. 
B) If AD rises and SRAS is constant, the price level rises in the short run. 
C) If both SRAS and AD decline, Real GDP falls in the short run. 
D) If both SRAS and AD increase, the price level necessarily rises in the short run. 
E) none of the above 
A) If the SRAS curve shifts rightward, the price level falls in the short run. 
B) If AD rises and SRAS is constant, the price level rises in the short run. 
C) If both SRAS and AD decline, Real GDP falls in the short run. 
D) If both SRAS and AD increase, the price level necessarily rises in the short run. 
E) none of the above

Question 9

If wage rates rise at the same time that labor productivity increases, what is the effect on short-run aggregate supply (SRAS)?

Accepted Answer

A) SRAS rises. 
B) SRAS falls. 
C) SRAS remains constant. 
D) SRAS may rise, fall, or remain constant. 
A) SRAS rises. 
B) SRAS falls. 
C) SRAS remains constant. 
D) SRAS may rise, fall, or remain constant.

Question 10

Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

Accepted Answer

A) increases; leftward 
B) decreases; leftward 
C) increases; rightward 
D) decreases; rightward 
A) increases; leftward 
B) decreases; leftward 
C) increases; rightward 
D) decreases; rightward

Question 11

__________ identifies the level of Real GDP the economy produces when all economywide adjustments have taken place and there are no misperceptions on the part of workers.

Accepted Answer

A) Short-run equilibrium 
B) Disequilibrium 
C) Long-run equilibrium 
D) Equilibrium 
E) none of the above 
A) Short-run equilibrium 
B) Disequilibrium 
C) Long-run equilibrium 
D) Equilibrium 
E) none of the above

Question 12

As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.

Accepted Answer

A) more; right 
B) more; left 
C) less; right 
D) less; left 
A) more; right 
B) more; left 
C) less; right 
D) less; left

Question 13

If labor productivity rises at the same time that there is a beneficial supply shock, what is the effect on short-run aggregate supply (SRAS)?

Accepted Answer

A) SRAS rises. 
B) SRAS falls. 
C) SRAS remains constant. 
D) SRAS may rise, fall, or remain constant. 
A) SRAS rises. 
B) SRAS falls. 
C) SRAS remains constant. 
D) SRAS may rise, fall, or remain constant.

Question 14

Foreign real national income rises. This raises U.S. ___________ which ________ aggregate demand (AD). The AD curve shifts ___________ as a result.

Accepted Answer

A) net exports; raises; rightward 
B) imports; raises; rightward 
C) prices; reduces; leftward 
D) investment; reduces; leftward 
E) none of the above 
A) net exports; raises; rightward 
B) imports; raises; rightward 
C) prices; reduces; leftward 
D) investment; reduces; leftward 
E) none of the above

Question 15

If wages are "sticky", a decline in the price level will

Accepted Answer

A) raise the real wage and lower the quantity demanded of labor. 
B) lower the real wage and lower the quantity supplied of labor. 
C) raise the real wage and lower the quantity supplied of labor. 
D) a and b 
E) none of the above 
A) raise the real wage and lower the quantity demanded of labor. 
B) lower the real wage and lower the quantity supplied of labor. 
C) raise the real wage and lower the quantity supplied of labor. 
D) a and b 
E) none of the above

Question 16

Suppose that a worker has the option of being paid in euros or dollars. It would be to the workers advantage if his employer pays him in ____________ rather than ______________ if the worker believes that the value of the dollar is about to ____________ relative to the value of the euro.

Accepted Answer

A) euros; dollars; fall 
B) dollars; euros; rise 
C) euros; dollars; rise 
D) dollars; euros; fall 
E) ​a and b 
A) euros; dollars; fall 
B) dollars; euros; rise 
C) euros; dollars; rise 
D) dollars; euros; fall 
E) ​a and b

Question 17

Which set of changes is definitely predicted to raise the price level in the short run?

Accepted Answer

A) The money supply falls and wage rates rise. 
B) The money supply falls and wage rates fall. 
C) The money supply rises and wage rates fall. 
D) Labor productivity rises and there is a beneficial supply shock. 
E) The prices of nonlabor inputs rise and individuals expect higher (future) incomes. 
A) The money supply falls and wage rates rise. 
B) The money supply falls and wage rates fall. 
C) The money supply rises and wage rates fall. 
D) Labor productivity rises and there is a beneficial supply shock. 
E) The prices of nonlabor inputs rise and individuals expect higher (future) incomes.

Question 18

As the price level falls,

Accepted Answer

A) the purchasing power of cash holdings rises. 
B) the purchasing power of cash holdings falls. 
C) the purchasing power of cash holdings remains constant. 
D) cash holdings turn into dollar-denominated assets. 
E) none of the above 
A) the purchasing power of cash holdings rises. 
B) the purchasing power of cash holdings falls. 
C) the purchasing power of cash holdings remains constant. 
D) cash holdings turn into dollar-denominated assets. 
E) none of the above

Question 19

As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.

Accepted Answer

A) rises; more 
B) rises; less 
C) falls; more 
D) falls; less 
A) rises; more 
B) rises; less 
C) falls; more 
D) falls; less

Question 20

Exhibit 8-2
  
-Refer to Exhibit 8-2. What word (rises or falls) should go in blank (9) and blank (10), respectively, to summarize the resulting impact on short run equilibrium of the given change in the economy?

Accepted Answer

A) rises; rises 
B) falls; falls 
C) rises; falls 
D) falls; rises 
A) rises; rises 
B) falls; falls 
C) rises; falls 
D) falls; rises

Exam 8: Aggregate Demand and Aggregate Supply

The short-run aggregate supply curve slopes upward as a result of the real balance effect, the interest rate effect, and the international trade effect.

Exhibit 8-1 -Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If foreign real national income rises, at which point is the economy most likely to end up in the short run?

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

Exhibit 8-1 -Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up in the short run?

Which of the following is not a factor that can shift the short-run aggregate supply curve?

A fall in the price level changes the purchasing power of money. This is relevant to the __________ effect.

Which of the following statements is false?

If wage rates rise at the same time that labor productivity increases, what is the effect on short-run aggregate supply (SRAS)?

Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

__________ identifies the level of Real GDP the economy produces when all economywide adjustments have taken place and there are no misperceptions on the part of workers.

As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.

If labor productivity rises at the same time that there is a beneficial supply shock, what is the effect on short-run aggregate supply (SRAS)?

Foreign real national income rises. This raises U.S. ___________ which ________ aggregate demand (AD). The AD curve shifts ___________ as a result.

If wages are "sticky", a decline in the price level will

Suppose that a worker has the option of being paid in euros or dollars. It would be to the workers advantage if his employer pays him in ____________ rather than ______________ if the worker believes that the value of the dollar is about to ____________ relative to the value of the euro.

Which set of changes is definitely predicted to raise the price level in the short run?

As the price level falls,

As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.

Exhibit 8-2 -Refer to Exhibit 8-2. What word (rises or falls) should go in blank (9) and blank (10), respectively, to summarize the resulting impact on short run equilibrium of the given change in the economy?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

A decrease in business taxes, causes the expected profitability of investment projects to , which then shifts the AD curve to the .

Suppose consumption decreases at each price level. As a result, aggregate demand , and the AD curve shifts .

As the interest rate rises, businesses invest and the AD curve shifts to the .

Foreign real national income rises. This raises U.S. _ which aggregate demand (AD). The AD curve shifts _ as a result.

Suppose that a worker has the option of being paid in euros or dollars. It would be to the workers advantage if his employer pays him in rather than if the worker believes that the value of the dollar is about to __ relative to the value of the euro.

As the interest rate rises, the cost of a given investment project and businesses invest .