Question 1

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

Accepted Answer

A) True 
 B)False  True

Question 2

A decrease in personal and business taxes will cause government spending and aggregate demand to decrease.

Accepted Answer

A) True 
 B)False  False

Question 3

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

Accepted Answer

A) cause cost-push inflation. 
B) increase real output but not the price level. 
C) increase the price level but not real output. 
D) increase both the price level and real output. 
A) cause cost-push inflation. 
B) increase real output but not the price level. 
C) increase the price level but not real output. 
D) increase both the price level and real output. D

Question 4

The upward slope of the short-run aggregate supply curve is based on the assumption that

Accepted Answer

A) wages and other resource prices do not respond to price level changes. 
B) wages and other resource prices do respond to price level changes. 
C) prices of outputs do not respond to price level changes. 
D) prices of inputs are flexible, while prices of outputs are fixed. 
A) wages and other resource prices do not respond to price level changes. 
B) wages and other resource prices do respond to price level changes. 
C) prices of outputs do not respond to price level changes. 
D) prices of inputs are flexible, while prices of outputs are fixed.

Question 5

An increase in investment and government spending can be expected to shift the

Accepted Answer

A) aggregate expenditures curve downward and the aggregate demand curve leftward. 
B) aggregate expenditures curve upward and the aggregate demand curve leftward. 
C) aggregate expenditures curve downward and the aggregate demand curve rightward. 
D) aggregate expenditures curve upward and the aggregate demand curve rightward. 
A) aggregate expenditures curve downward and the aggregate demand curve leftward. 
B) aggregate expenditures curve upward and the aggregate demand curve leftward. 
C) aggregate expenditures curve downward and the aggregate demand curve rightward. 
D) aggregate expenditures curve upward and the aggregate demand curve rightward.

Question 6

Menu costs

Accepted Answer

A) increase during recession. 
B) decrease during recession. 
C) are the costs to firms of changing prices and communicating them to customers. 
D) are sunk costs and therefore should be disregarded. 
A) increase during recession. 
B) decrease during recession. 
C) are the costs to firms of changing prices and communicating them to customers. 
D) are sunk costs and therefore should be disregarded.

Question 7

The foreign purchases effect

Accepted Answer

A) shifts the aggregate demand curve rightward. 
B) shifts the aggregate demand curve leftward. 
C) shifts the aggregate supply curve rightward. 
D) moves the economy along a fixed aggregate demand curve. 
A) shifts the aggregate demand curve rightward. 
B) shifts the aggregate demand curve leftward. 
C) shifts the aggregate supply curve rightward. 
D) moves the economy along a fixed aggregate demand curve.

Question 8

Aggregate demand decreases and real output falls but the price level remains the same.Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

Accepted Answer

A) the multiplier effect 
B) the wealth effect 
C) fear of price wars 
D) business taxes 
A) the multiplier effect 
B) the wealth effect 
C) fear of price wars 
D) business taxes

Question 9

Which of the following effects best explains the downward slope of the aggregate demand curve?

Accepted Answer

A) a multiplier effect 
B) an expectations effect 
C) a substitution effect 
D) an interest-rate effect 
A) a multiplier effect 
B) an expectations effect 
C) a substitution effect 
D) an interest-rate effect

Question 10

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 11

In which of the following sets of circumstances can we confidently expect inflation?

Accepted Answer

A) Aggregate supply and aggregate demand both increase. 
B) Aggregate supply and aggregate demand both decrease. 
C) Aggregate supply decreases and aggregate demand increases. 
D) Aggregate supply increases and aggregate demand decreases. 
A) Aggregate supply and aggregate demand both increase. 
B) Aggregate supply and aggregate demand both decrease. 
C) Aggregate supply decreases and aggregate demand increases. 
D) Aggregate supply increases and aggregate demand decreases.

Question 12

A movement upward along a given aggregate demand curve is equivalent to a(n)

Accepted Answer

A) increase in aggregate supply. 
B) increase in aggregate demand. 
C) upward shift in the aggregate expenditures schedule. 
D) downward shift in the aggregate expenditures schedule. 
A) increase in aggregate supply. 
B) increase in aggregate demand. 
C) upward shift in the aggregate expenditures schedule. 
D) downward shift in the aggregate expenditures schedule.

Question 13

Wage contracts, efficiency wages, and the minimum wage are explanations for why

Accepted Answer

A) competition results in price wars. 
B) wages tend to be inflexible downward. 
C) the aggregate demand curve slopes downward. 
D) there is little support for the existence of a real-balances effect. 
A) competition results in price wars. 
B) wages tend to be inflexible downward. 
C) the aggregate demand curve slopes downward. 
D) there is little support for the existence of a real-balances effect.

Question 14

An increase in investment spending caused by higher expected rates of return will

Accepted Answer

A) shift the aggregate supply curve to the left. 
B) move the economy up along an existing aggregate demand curve. 
C) shift the aggregate expenditures curve downward and the aggregate demand curve to the left. 
D) shift the aggregate expenditures curve upward and the aggregate demand curve to the right. 
A) shift the aggregate supply curve to the left. 
B) move the economy up along an existing aggregate demand curve. 
C) shift the aggregate expenditures curve downward and the aggregate demand curve to the left. 
D) shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

Question 15

Per-unit production cost is

Accepted Answer

A) real output divided by inputs. 
B) total input cost divided by units of output. 
C) units of output divided by total input cost. 
D) a determinant of aggregate demand. 
A) real output divided by inputs. 
B) total input cost divided by units of output. 
C) units of output divided by total input cost. 
D) a determinant of aggregate demand.

Question 16

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The per-unit cost of production in the economy described is

Accepted Answer

A) $0.50. 
B) $1. 
C) $2. 
D) $5. 
A) $0.50. 
B) $1. 
C) $2. 
D) $5.

Question 17

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of

Accepted Answer

A) the foreign purchases effect. 
B) inflexible product prices. 
C) wage contracts. 
D) the wealth effect. 
A) the foreign purchases effect. 
B) inflexible product prices. 
C) wage contracts. 
D) the wealth effect.

Question 18

Macroeconomic equilibrium in the short run always occurs at full-employment GDP.

Accepted Answer

A) True 
 B)False

Question 19

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units.Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3.If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate

Accepted Answer

A) supply curve would shift to the left. 
B) supply curve would shift to the right. 
C) demand curve would shift to the left. 
D) demand curve would shift to the right. 
A) supply curve would shift to the left. 
B) supply curve would shift to the right. 
C) demand curve would shift to the left. 
D) demand curve would shift to the right.

Question 20

Deflation refers to a situation where

Accepted Answer

A) the price level falls; it could be caused by a shift of AD to the left. 
B) the price level falls; it could be caused by a decrease in aggregate supply. 
C) the rate of inflation falls; it could be caused by a shift of AS to the right. 
D) the rate of inflation rises; it could be caused by a decrease in aggregate demand. 
A) the price level falls; it could be caused by a shift of AD to the left. 
B) the price level falls; it could be caused by a decrease in aggregate supply. 
C) the rate of inflation falls; it could be caused by a shift of AS to the right. 
D) the rate of inflation rises; it could be caused by a decrease in aggregate demand.

Exam 32: Aggregate Demand and Aggregate Supply

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

A decrease in personal and business taxes will cause government spending and aggregate demand to decrease.

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

The upward slope of the short-run aggregate supply curve is based on the assumption that

An increase in investment and government spending can be expected to shift the

Menu costs

The foreign purchases effect

Aggregate demand decreases and real output falls but the price level remains the same.Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

Which of the following effects best explains the downward slope of the aggregate demand curve?

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve.

In which of the following sets of circumstances can we confidently expect inflation?

A movement upward along a given aggregate demand curve is equivalent to a(n)

Wage contracts, efficiency wages, and the minimum wage are explanations for why

An increase in investment spending caused by higher expected rates of return will

Per-unit production cost is

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4.The per-unit cost of production in the economy described is

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of

Macroeconomic equilibrium in the short run always occurs at full-employment GDP.

Deflation refers to a situation where

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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