Question 1

The interest-rate effect suggests that

Accepted Answer

A) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. 
A) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. 
B) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. 
C) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. 
D) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

Question 2

The aggregate supply curve (short run) becomes steeper as the economy moves rightward and upward along it.

Accepted Answer

A) True 
 B)False

Question 3

The aggregate supply curve (short run) is upsloping because

Accepted Answer

A) wages and other resource prices match changes in the price level. 
B) the price level is flexible upward but inflexible downward. 
C) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. 
D) wages and other resource prices are flexible upward but inflexible downward. 
A) wages and other resource prices match changes in the price level. 
B) the price level is flexible upward but inflexible downward. 
C) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. 
D) wages and other resource prices are flexible upward but inflexible downward.

Question 4

The long-run aggregate supply analysis assumes that

Accepted Answer

A) input prices are fixed, while product prices are variable. 
B) input prices are variable, while product prices are fixed. 
C) both input and product prices are variable. 
D) both input and product prices are fixed. 
A) input prices are fixed, while product prices are variable. 
B) input prices are variable, while product prices are fixed. 
C) both input and product prices are variable. 
D) both input and product prices are fixed.

Question 5

The economy experiences an increase in the price level and an increase in real domestic output.Which is a likely explanation?

Accepted Answer

A) Interest rates have increased. 
B) Business taxes have increased. 
C) Wage rates have fallen. 
D) Net exports have increased. 
A) Interest rates have increased. 
B) Business taxes have increased. 
C) Wage rates have fallen. 
D) Net exports have increased.

Question 6

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending.What was the result of that spending over the first three years?

Accepted Answer

A) Neither economic growth nor unemployment responded as well as many economists had predicted. 
B) Economic growth responded in accordance with predictions, but unemployment remained much higher than anticipated. 
C) Economic growth remained sluggish, but the unemployment rate fell to predicted levels. 
D) Both economic growth and the unemployment rate responded well, reaching the fiscal policy targets set by the government. 
A) Neither economic growth nor unemployment responded as well as many economists had predicted. 
B) Economic growth responded in accordance with predictions, but unemployment remained much higher than anticipated. 
C) Economic growth remained sluggish, but the unemployment rate fell to predicted levels. 
D) Both economic growth and the unemployment rate responded well, reaching the fiscal policy targets set by the government.

Question 7

The short-run aggregate supply curve shows the

Accepted Answer

A) inverse relationship between the price level and real GDP purchased. 
B) inverse relationship between the price level and real GDP produced. 
C) direct relationship between the price level and real GDP produced. 
D) direct relationship between the price level and real GDP purchased. 
A) inverse relationship between the price level and real GDP purchased. 
B) inverse relationship between the price level and real GDP produced. 
C) direct relationship between the price level and real GDP produced. 
D) direct relationship between the price level and real GDP purchased.

Question 8

An increase in aggregate demand is most likely to be caused by which of the following?

Accepted Answer

A) an increase in real interest rates 
B) a decrease in government spending 
C) a decrease in expected returns on investment 
D) a decrease in the tax rates on household income 
A) an increase in real interest rates 
B) a decrease in government spending 
C) a decrease in expected returns on investment 
D) a decrease in the tax rates on household income

Question 9

(Consider This) The ratchet effect is the tendency of

Accepted Answer

A) the price level to increase but not to decrease. 
B) nominal GDP to increase more rapidly than real GDP. 
C) real interest rates to fall more rapidly than nominal interest rates. 
D) consumption to rise year after year regardless of what happens to disposable income. 
A) the price level to increase but not to decrease. 
B) nominal GDP to increase more rapidly than real GDP. 
C) real interest rates to fall more rapidly than nominal interest rates. 
D) consumption to rise year after year regardless of what happens to disposable income.

Question 10

In the immediate short run, both input and output prices are fixed.

Accepted Answer

A) True 
 B)False

Question 11

A decrease in expected returns on investment will most likely shift the AD curve to the

Accepted Answer

A) right because C will increase. 
B) left because C will decrease. 
C) right because Ig will increase. 
D) left because Ig will decrease. 
A) right because C will increase. 
B) left because C will decrease. 
C) right because Ig will increase. 
D) left because Ig will decrease.

Question 12

Which of the following is incorrect?

Accepted Answer

A) As the U.S.price level rises, U.S.goods become relatively more expensive so that U.S.exports fall and U.S.imports rise. 
B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases. 
C) When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending. 
D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level. 
A) As the U.S.price level rises, U.S.goods become relatively more expensive so that U.S.exports fall and U.S.imports rise. 
B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases. 
C) When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending. 
D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level.

Question 13

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a

Accepted Answer

A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve. 
B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve. 
C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. 
D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve. 
A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve. 
B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve. 
C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. 
D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

Question 14

In the accompanying table for a particular country, C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports.All figures are in billions of dollars.A decline in the international value of the dollar would

Accepted Answer

A) increase the values in the X and M columns and reduce aggregate demand. 
B) decrease the values in the X and M columns and increase aggregate demand. 
C) decrease the values in column X increase the values in column M , and reduce aggregate demand. 
D) increase the values in column X , decrease the values in column M , and increase aggregate demand. 
A) increase the values in the X and M columns and reduce aggregate demand. 
B) decrease the values in the X and M columns and increase aggregate demand. 
C) decrease the values in column X increase the values in column M , and reduce aggregate demand. 
D) increase the values in column X , decrease the values in column M , and increase aggregate demand.

Question 15

When the excess capacity of business expands unintentionally, aggregate

Accepted Answer

A) demand will increase. 
B) demand will decrease. 
C) supply will increase. 
D) supply will decrease. 
A) demand will increase. 
B) demand will decrease. 
C) supply will increase. 
D) supply will decrease.

Question 16

A decrease in consumer 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 17

The intersection of the aggregate demand and aggregate supply curves determines the

Accepted Answer

A) productivity level in the economy. 
B) shape of the aggregate demand curve. 
C) per-unit cost of production in the economy. 
D) equilibrium level of real domestic output and prices. 
A) productivity level in the economy. 
B) shape of the aggregate demand curve. 
C) per-unit cost of production in the economy. 
D) equilibrium level of real domestic output and prices.

Question 18

(Advanced analysis) Assume that the MPC is 0.8 in an economy that has an aggregate supply curve with a slope of 1.Also, suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by

Accepted Answer

A) $50 billion and decrease real GDP by $50 billion. 
B) $50 billion and decrease real GDP by $25 billion. 
C) $10 billion and decrease real GDP by $10 billion. 
D) $10 billion and decrease real GDP by $25 billion. 
A) $50 billion and decrease real GDP by $50 billion. 
B) $50 billion and decrease real GDP by $25 billion. 
C) $10 billion and decrease real GDP by $10 billion. 
D) $10 billion and decrease real GDP by $25 billion.

Question 19

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

Accepted Answer

A) real-balances, interest-rate, and foreign purchases effects. 
B) determinants of aggregate supply. 
C) determinants of aggregate demand. 
D) sole determinants of the equilibrium price level and the equilibrium real output. 
A) real-balances, interest-rate, and foreign purchases effects. 
B) determinants of aggregate supply. 
C) determinants of aggregate demand. 
D) sole determinants of the equilibrium price level and the equilibrium real output.

Question 20

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

Accepted Answer

A) a reduction in business taxes 
B) production bottlenecks occurring when producers near full plant capacity 
C) an increase in the price of imported resources 
D) deregulation of industry 
A) a reduction in business taxes 
B) production bottlenecks occurring when producers near full plant capacity 
C) an increase in the price of imported resources 
D) deregulation of industry

Exam 32: Aggregate Demand and Aggregate Supply

The interest-rate effect suggests that

The aggregate supply curve (short run) becomes steeper as the economy moves rightward and upward along it.

The aggregate supply curve (short run) is upsloping because

The long-run aggregate supply analysis assumes that

The economy experiences an increase in the price level and an increase in real domestic output.Which is a likely explanation?

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending.What was the result of that spending over the first three years?

The short-run aggregate supply curve shows the

An increase in aggregate demand is most likely to be caused by which of the following?

(Consider This) The ratchet effect is the tendency of

In the immediate short run, both input and output prices are fixed.

A decrease in expected returns on investment will most likely shift the AD curve to the

Which of the following is incorrect?

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a

In the accompanying table for a particular country, C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports.All figures are in billions of dollars.A decline in the international value of the dollar would

When the excess capacity of business expands unintentionally, aggregate

A decrease in consumer spending can be expected to shift the

The intersection of the aggregate demand and aggregate supply curves determines the

(Advanced analysis) Assume that the MPC is 0.8 in an economy that has an aggregate supply curve with a slope of 1.Also, suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

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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