Question 1

Explain why the long-run aggregate supply curve is vertical.

Accepted Answer

In the long run, the economy operates at full employment, and changes in the price level do not affect employment.Because the level of full-employment output does not depend on the price level, long-run aggregate supply is unaffected by the price, and so is vertical.

Question 2

Identify three key factors that can cause a shift in the aggregate demand curve.

Accepted Answer

the supply of money, changes in taxes, changes in government spending

Question 3

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD2 could be caused by a(n)

Accepted Answer

A)  increase in the money supply. 
B)  increase in taxes. 
C)  increase in the price level. 
D)  decrease in government spending. 
A)  increase in the money supply. 
B)  increase in taxes. 
C)  increase in the price level. 
D)  decrease in government spending. A

Question 4

Prices that adjust nearly on a daily basis are

Accepted Answer

A)  custom prices. 
B)  auction prices. 
C)  sticky prices. 
D)  heavy prices. 
A)  custom prices. 
B)  auction prices. 
C)  sticky prices. 
D)  heavy prices.

Question 5

Aggregate demand will be affected by the purchasing power of money.

Accepted Answer

A) True 
 B)False

Question 6

When there is a shift the aggregate supply curve caused by factors external to a nation's economy, it is called

Accepted Answer

A)  trade imbalance. 
B)  government control. 
C)  supply shock. 
D)  economic anomaly. 
A)  trade imbalance. 
B)  government control. 
C)  supply shock. 
D)  economic anomaly.

Question 7

Suppose that demand for a product falls, but prices are sticky. What is likely to happen to prices and output in that market, in the short run?

Accepted Answer

If prices are not flexible, they may not

Question 8

Recall the Application about the causes of oil price increases to answer the following question(s). Economist Lutz Kilian examined the importance of supply disruptions to the U.S. oil market by constructing measures of supply disruptions in oil producing countries based on a detailed examination of prior trends in demand and specifications in oil contracts.
-According to this Application, if speculators believe oil prices are going to rise in the future, they will ________ oil now, which will tend to ________ the current price of oil.

Accepted Answer

A)  buy; decrease 
B)  buy; increase 
C)  sell; decrease 
D)  sell; increase 
A)  buy; decrease 
B)  buy; increase 
C)  sell; decrease 
D)  sell; increase

Question 9

An implication of the long-run aggregate supply curve is that continuous increases in the money supply will result in continuous

Accepted Answer

A)  increases in price level. 
B)  decreases in output and price level. 
C)  decreases in output. 
D)  increases in output and price level. 
A)  increases in price level. 
B)  decreases in output and price level. 
C)  decreases in output. 
D)  increases in output and price level.

Question 10

Describe how adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium.

Accepted Answer

For example, if the level of output exce

Question 11

The relationship between the level of income and investment spending is known as the consumption function.

Accepted Answer

A) True 
 B)False

Question 12

Recall the Application about the behavior of prices in retail catalogs to answer the following question(s). Economist Anil Kashyap of the University of Chicago examined the prices of 12 selected goods from L.L. Bean, REI, and The Orvis Company, Inc. Kashyap tracked the prices from the companies' catalogs which were reissued every six months.
-According to this Application, the prices which were tracked in the retail catalogs exemplified the macroeconomic concept of the short run, a period of time in which

Accepted Answer

A)  price changes are significant because the aggregate supply curve is vertical. 
B)  prices never change because the aggregate demand curve is vertical. 
C)  prices change frequently because of changes in aggregate supply. 
D)  prices don't change very much, implying that the aggregate supply curve is relatively flat. 
A)  price changes are significant because the aggregate supply curve is vertical. 
B)  prices never change because the aggregate demand curve is vertical. 
C)  prices change frequently because of changes in aggregate supply. 
D)  prices don't change very much, implying that the aggregate supply curve is relatively flat.

Question 13

Workers whose wages tend to adjust slowly include all of the following EXCEPT

Accepted Answer

A)  union workers. 
B)  unskilled, low wage workers. 
C)  those with long-term contracts. 
D)  movie stars, professional athletes, and rock stars. 
A)  union workers. 
B)  unskilled, low wage workers. 
C)  those with long-term contracts. 
D)  movie stars, professional athletes, and rock stars.

Question 14

The term "stagflation" is used to define an economic situation where there are adverse supply shocks which cause a fall in output but with increasing price level.

Accepted Answer

A) True 
 B)False

Question 15

The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as

Accepted Answer

A)  Keynesian economics. 
B)  investment cycle theory. 
C)  real business cycle theory. 
D)  technology shock theory. 
A)  Keynesian economics. 
B)  investment cycle theory. 
C)  real business cycle theory. 
D)  technology shock theory.

Question 16

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD0 could be caused by a(n)

Accepted Answer

A)  decrease in the money supply. 
B)  decrease in taxes. 
C)  increase in the price level. 
D)  increase in government spending. 
A)  decrease in the money supply. 
B)  decrease in taxes. 
C)  increase in the price level. 
D)  increase in government spending.

Question 17

If potential output exceeds actual output, ________ shifts downward over time.

Accepted Answer

A)  the short-run AS curve 
B)  the short-run AD curve 
C)  the long-run AS curve 
D)  the long-run AD curve 
A)  the short-run AS curve 
B)  the short-run AD curve 
C)  the long-run AS curve 
D)  the long-run AD curve

Question 18

Changes in demand will often be met with changes in output rather than changes in prices because of formal and informal contracts.

Accepted Answer

A) True 
 B)False

Question 19

The real value of money ________ as the price level falls.

Accepted Answer

A)  remains the same 
B)  decreases 
C)  increases 
D)  none of the above 
A)  remains the same 
B)  decreases 
C)  increases 
D)  none of the above

Question 20

Figure 9.2
  
-Refer to Figure 9.2. A movement from point c to point b could be caused by a simultaneous ________ and ________.

Accepted Answer

A)  decrease in government spending; decrease in the price of oil 
B)  decrease in taxes; increase in the price of oil 
C)  increase in taxes; decrease in government spending 
D)  increase in government spending; increase in the money supply 
A)  decrease in government spending; decrease in the price of oil 
B)  decrease in taxes; increase in the price of oil 
C)  increase in taxes; decrease in government spending 
D)  increase in government spending; increase in the money supply

Explain why the long-run aggregate supply curve is vertical.

Identify three key factors that can cause a shift in the aggregate demand curve.

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD2 could be caused by a(n)

Prices that adjust nearly on a daily basis are

Aggregate demand will be affected by the purchasing power of money.

When there is a shift the aggregate supply curve caused by factors external to a nation's economy, it is called

Suppose that demand for a product falls, but prices are sticky. What is likely to happen to prices and output in that market, in the short run?

An implication of the long-run aggregate supply curve is that continuous increases in the money supply will result in continuous

Describe how adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium.

The relationship between the level of income and investment spending is known as the consumption function.

Workers whose wages tend to adjust slowly include all of the following EXCEPT

The term "stagflation" is used to define an economic situation where there are adverse supply shocks which cause a fall in output but with increasing price level.

The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD0 could be caused by a(n)

If potential output exceeds actual output, ________ shifts downward over time.

Changes in demand will often be met with changes in output rather than changes in prices because of formal and informal contracts.

The real value of money ________ as the price level falls.

Figure 9.2 -Refer to Figure 9.2. A movement from point c to point b could be caused by a simultaneous and .

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 9: Aggregate Demand and Aggregate Supply

Explain why the long-run aggregate supply curve is vertical.

Identify three key factors that can cause a shift in the aggregate demand curve.

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD2 could be caused by a(n)

Prices that adjust nearly on a daily basis are

Aggregate demand will be affected by the purchasing power of money.

When there is a shift the aggregate supply curve caused by factors external to a nation's economy, it is called

Suppose that demand for a product falls, but prices are sticky. What is likely to happen to prices and output in that market, in the short run?

An implication of the long-run aggregate supply curve is that continuous increases in the money supply will result in continuous

Describe how adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium.

The relationship between the level of income and investment spending is known as the consumption function.

Workers whose wages tend to adjust slowly include all of the following EXCEPT

The term "stagflation" is used to define an economic situation where there are adverse supply shocks which cause a fall in output but with increasing price level.

The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as

Figure 9.1 shows three aggregate demand curves. A movement from curve AD1 to curve AD0 could be caused by a(n)

If potential output exceeds actual output, ________ shifts downward over time.

Changes in demand will often be met with changes in output rather than changes in prices because of formal and informal contracts.

The real value of money ________ as the price level falls.

Figure 9.2 -Refer to Figure 9.2. A movement from point c to point b could be caused by a simultaneous ________ and ________.

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Figure 9.2 -Refer to Figure 9.2. A movement from point c to point b could be caused by a simultaneous and .