Question 1

As the available technology improves, ______ shifts to the _____.

Accepted Answer

A) aggregate demand; left 
B) aggregate demand; right 
C) aggregate supply; left 
D) aggregate supply; right 
A) aggregate demand; left 
B) aggregate demand; right 
C) aggregate supply; left 
D) aggregate supply; right

Question 2

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _____ gap and inflation will _____.

Accepted Answer

A) recessionary; increase 
B) recessionary; decrease 
C) expansionary; decrease 
D) expansionary; increase 
A) recessionary; increase 
B) recessionary; decrease 
C) expansionary; decrease 
D) expansionary; increase

Question 3

Changes in planned spending not caused by changes in output or the inflation rate will shift the:

Accepted Answer

A) aggregate supply curve. 
B) Keynesian cross. 
C) potential output line. 
D) aggregate demand curve. 
A) aggregate supply curve. 
B) Keynesian cross. 
C) potential output line. 
D) aggregate demand curve.

Question 4

A leftward shift of the AS curve indicates:

Accepted Answer

A) a decrease in aggregate supply. 
B) an increase in aggregate supply. 
C) a decrease in potential GDP. 
D) an increase in potential GDP. 
A) a decrease in aggregate supply. 
B) an increase in aggregate supply. 
C) a decrease in potential GDP. 
D) an increase in potential GDP.

Question 5

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ______ shifts _____.

Accepted Answer

A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) aggregate supply curve; left 
D) aggregate supply curve; right 
A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) aggregate supply curve; left 
D) aggregate supply curve; right

Question 6

Changes in planned spending that shift the aggregate demand curve are those:

Accepted Answer

A) caused by changes in output. 
B) caused by changes in the inflation rate. 
C) caused by changes in output and changes in the real interest rate. 
D) not caused by changes in output or changes in the inflation rate. 
A) caused by changes in output. 
B) caused by changes in the inflation rate. 
C) caused by changes in output and changes in the real interest rate. 
D) not caused by changes in output or changes in the inflation rate.

Question 7

Refer to the figure below.Suppose that the economy is initially in equilibrium with output Y2 and inflation rate of 3.An increase in military spending will generate:

Accepted Answer

A) a recessionary gap. 
B) an expansionary gap. 
C) disinflation. 
D) hyperinflation. 
A) a recessionary gap. 
B) an expansionary gap. 
C) disinflation. 
D) hyperinflation.

Question 8

If households and firms expect higher rates of inflation, the ______ curve will shift _____.

Accepted Answer

A) AD; rightward 
B) AS; rightward 
C) AS; leftward 
D) AD; until it becomes vertical 
A) AD; rightward 
B) AS; rightward 
C) AS; leftward 
D) AD; until it becomes vertical

Question 9

The self-correcting tendency of the economy means that rising inflation eventually eliminates:

Accepted Answer

A) expansionary gaps. 
B) recessionary gaps. 
C) exogenous spending. 
D) unemployment. 
A) expansionary gaps. 
B) recessionary gaps. 
C) exogenous spending. 
D) unemployment.

Question 10

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the ______ shifts _____.

Accepted Answer

A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) aggregate supply curve; left 
D) aggregate supply curve; right 
A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) aggregate supply curve; left 
D) aggregate supply curve; right

Question 11

The AD curve can be shifted by:

Accepted Answer

A) both fiscal and monetary policy. 
B) neither fiscal nor monetary policy. 
C) fiscal policy only. 
D) monetary policy only. 
A) both fiscal and monetary policy. 
B) neither fiscal nor monetary policy. 
C) fiscal policy only. 
D) monetary policy only.

Question 12

The AS curve slopes upward because:

Accepted Answer

A) firms generally sell their products at preset prices. 
B) relaxing the assumptions of the Keynesian model allows us to develop a more realistic model where firms no longer care about prices. 
C) many firms raise their prices when aggregate demand has increased. 
D) inflation is higher in goods-producing industries than service-producing industries. 
A) firms generally sell their products at preset prices. 
B) relaxing the assumptions of the Keynesian model allows us to develop a more realistic model where firms no longer care about prices. 
C) many firms raise their prices when aggregate demand has increased. 
D) inflation is higher in goods-producing industries than service-producing industries.

Question 13

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y1 and inflation rate 2.The economy is currently experiencing ______, and the correct monetary policy response to this situation, to return the economy to potential GDP, is to ______.

Accepted Answer

A) a recessionary gap; raise taxes 
B) an expansionary gap; cut taxes 
C) a recessionary gap; increase the money supply 
D) an expansionary gap; decrease the money supply 
A) a recessionary gap; raise taxes 
B) an expansionary gap; cut taxes 
C) a recessionary gap; increase the money supply 
D) an expansionary gap; decrease the money supply

Question 14

The two negative demand shocks that caused the Great Recession were:

Accepted Answer

A) declining housing prices and the 2008 financial panic. 
B) declining housing prices and declining stock prices. 
C) increasing oil prices and the 2008 financial panic. 
D) increasing oil prices and declining stock prices. 
A) declining housing prices and the 2008 financial panic. 
B) declining housing prices and declining stock prices. 
C) increasing oil prices and the 2008 financial panic. 
D) increasing oil prices and declining stock prices.

Question 15

As the number or quality of available resources improves, ______ shifts to the _____.

Accepted Answer

A) aggregate demand; left 
B) aggregate demand; right 
C) aggregate supply; left 
D) aggregate supply; right 
A) aggregate demand; left 
B) aggregate demand; right 
C) aggregate supply; left 
D) aggregate supply; right

Question 16

Inflation inertia is the result of the behavior of ____ and the existence of ______.

Accepted Answer

A) the central bank; automatic stabilizers 
B) real and nominal interest rates; an output gap 
C) autonomous aggregate demand; the Fed's policy reaction function 
D) inflation expectations; long-term wage and price contracts 
A) the central bank; automatic stabilizers 
B) real and nominal interest rates; an output gap 
C) autonomous aggregate demand; the Fed's policy reaction function 
D) inflation expectations; long-term wage and price contracts

Question 17

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except:

Accepted Answer

A) a negative demand shock. 
B) a negative inflation shock. 
C) a decrease in government spending. 
D) a decrease in the inflation rate. 
A) a negative demand shock. 
B) a negative inflation shock. 
C) a decrease in government spending. 
D) a decrease in the inflation rate.

Question 18

Refer to the figure below.The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium indicated by point ___.

Accepted Answer

A) recessionary; A 
B) recessionary; B 
C) recessionary; C 
D) expansionary; A 
A) recessionary; A 
B) recessionary; B 
C) recessionary; C 
D) expansionary; A

Question 19

When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of ______.

Accepted Answer

A) rises; rise; the income-expenditure multiplier 
B) rises; fall; the income-expenditure multiplier 
C) falls; rise; the wealth effect 
D) falls; fall; the wealth effect 
A) rises; rise; the income-expenditure multiplier 
B) rises; fall; the income-expenditure multiplier 
C) falls; rise; the wealth effect 
D) falls; fall; the wealth effect

Question 20

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Accepted Answer

A) the inflation gap 
B) inflation expectations. 
C) inflation inertia. 
D) potential inflation. 
A) the inflation gap 
B) inflation expectations. 
C) inflation inertia. 
D) potential inflation.

As the available technology improves, __ shifts to the _.

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _ gap and inflation will _.

Changes in planned spending not caused by changes in output or the inflation rate will shift the:

A leftward shift of the AS curve indicates:

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the __ shifts _.

Changes in planned spending that shift the aggregate demand curve are those:

Refer to the figure below.Suppose that the economy is initially in equilibrium with output Y₂ and inflation rate of ₃.An increase in military spending will generate:

If households and firms expect higher rates of inflation, the __ curve will shift _.

The self-correcting tendency of the economy means that rising inflation eventually eliminates:

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the __ shifts _.

The AD curve can be shifted by:

The AS curve slopes upward because:

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y₁ and inflation rate ₂.The economy is currently experiencing , and the correct monetary policy response to this situation, to return the economy to potential GDP, is to .

The two negative demand shocks that caused the Great Recession were:

As the number or quality of available resources improves, __ shifts to the _.

Inflation inertia is the result of the behavior of and the existence of __.

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except:

Refer to the figure below.The economy pictured in the figure has a(n) ____ gap with a short-run equilibrium indicated by point _.

When the inflation rate decreases, PAE , which in turn causes Y to because of __.

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 13: Aggregate Demand, Aggregate Supply, and Business Cycles

As the available technology improves, ______ shifts to the _____.

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _____ gap and inflation will _____.

Changes in planned spending not caused by changes in output or the inflation rate will shift the:

A leftward shift of the AS curve indicates:

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ______ shifts _____.

Changes in planned spending that shift the aggregate demand curve are those:

Refer to the figure below.Suppose that the economy is initially in equilibrium with output Y2 and inflation rate of 3.An increase in military spending will generate:

If households and firms expect higher rates of inflation, the ______ curve will shift _____.

The self-correcting tendency of the economy means that rising inflation eventually eliminates:

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the ______ shifts _____.

The AD curve can be shifted by:

The AS curve slopes upward because:

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y1 and inflation rate 2.The economy is currently experiencing ______, and the correct monetary policy response to this situation, to return the economy to potential GDP, is to ______.

The two negative demand shocks that caused the Great Recession were:

As the number or quality of available resources improves, ______ shifts to the _____.

Inflation inertia is the result of the behavior of ____ and the existence of ______.

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except:

Refer to the figure below.The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium indicated by point ___.

When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of ______.

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

As the available technology improves, __ shifts to the _.

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _ gap and inflation will _.

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the __ shifts _.

Refer to the figure below.Suppose that the economy is initially in equilibrium with output Y₂ and inflation rate of ₃.An increase in military spending will generate:

If households and firms expect higher rates of inflation, the __ curve will shift _.

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the __ shifts _.

Refer to the figure below.Suppose the economy is in a short-run equilibrium at output Y₁ and inflation rate ₂.The economy is currently experiencing , and the correct monetary policy response to this situation, to return the economy to potential GDP, is to .

As the number or quality of available resources improves, __ shifts to the _.

Inflation inertia is the result of the behavior of and the existence of __.

Refer to the figure below.The economy pictured in the figure has a(n) ____ gap with a short-run equilibrium indicated by point _.

When the inflation rate decreases, PAE , which in turn causes Y to because of __.