Question 1

What occurs when the price level increases?

Accepted Answer

A)  People demand a smaller aggregate quantity of goods and services. 
B)  Consumers feel wealthier. 
C)  The same real value of assets is held by the public, regardless of the change in the price level. 
D)  People want to spend more. 
A)  People demand a smaller aggregate quantity of goods and services. 
B)  Consumers feel wealthier. 
C)  The same real value of assets is held by the public, regardless of the change in the price level. 
D)  People want to spend more.

Question 2

Which of the following is not a cost of production?

Accepted Answer

A)  Fuel 
B)  Labor 
C)  Advertising 
D)  Rent 
A)  Fuel 
B)  Labor 
C)  Advertising 
D)  Rent

Question 3

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

Accepted Answer

A)  $500 billion 
B)  $300 billion 
C)  $1.2 trillion 
D)  $800 billion 
A)  $500 billion 
B)  $300 billion 
C)  $1.2 trillion 
D)  $800 billion

Question 4

Which of the following is a component of aggregate demand?

Accepted Answer

A)  Consumption 
B)  Investment 
C)  Net exports 
D)  All of these are components of aggregate demand. 
A)  Consumption 
B)  Investment 
C)  Net exports 
D)  All of these are components of aggregate demand.

Question 5

The government might increase spending to end a recession because:

Accepted Answer

A)  allowing short-run aggregate supply to adjust back to the long run can take a long time. 
B)  it causes prices to be lower in the new long-run equilibrium. 
C)  the economy enjoys a higher level of output in the long run. 
D)  None of these explain why the government might increase its spending to end a recession. 
A)  allowing short-run aggregate supply to adjust back to the long run can take a long time. 
B)  it causes prices to be lower in the new long-run equilibrium. 
C)  the economy enjoys a higher level of output in the long run. 
D)  None of these explain why the government might increase its spending to end a recession.

Question 6

Increases in the overall price level:

Accepted Answer

A)  increase people's dollar-denominated wealth. 
B)  generally have no effect on spending. 
C)  increase consumption. 
D)  reduce consumption. 
A)  increase people's dollar-denominated wealth. 
B)  generally have no effect on spending. 
C)  increase consumption. 
D)  reduce consumption.

Question 7

If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

Accepted Answer

A)  $400 billion. 
B)  $1,600 billion. 
C)  $300 billion. 
D)  $1,200 billion. 
A)  $400 billion. 
B)  $1,600 billion. 
C)  $300 billion. 
D)  $1,200 billion.

Question 8

If an economy is in a recession, it means that:

Accepted Answer

A)  the economy is not in long-run equilibrium. 
B)  total output is less than potential output. 
C)  the short-run equilibrium lies to the left of the long-run aggregate supply curve. 
D)  All of these are true. 
A)  the economy is not in long-run equilibrium. 
B)  total output is less than potential output. 
C)  the short-run equilibrium lies to the left of the long-run aggregate supply curve. 
D)  All of these are true.

Question 9

Which of the following events would cause a demand shock?

Accepted Answer

A)  Refinery capacity in the United States drops permanently. 
B)  A new pest destroys much of the alfalfa crop in a given year. 
C)  The government spends less on infrastructure maintenance. 
D)  Housing prices fall. 
A)  Refinery capacity in the United States drops permanently. 
B)  A new pest destroys much of the alfalfa crop in a given year. 
C)  The government spends less on infrastructure maintenance. 
D)  Housing prices fall.

Question 10

When the economy produces less than its potential output, it is:

Accepted Answer

A)  in a recession. 
B)  not in long-run equilibrium. 
C)  producing a quantity less than the long-run aggregate supply. 
D)  All of these are true. 
A)  in a recession. 
B)  not in long-run equilibrium. 
C)  producing a quantity less than the long-run aggregate supply. 
D)  All of these are true.

Question 11

The figure shown displays various economic outcomes.   If the aggregate demand curve shifts from AD2 to AD1, the resulting price and output in the short run would be:

Accepted Answer

A)  P 1 and Y 1. 
B)  P 3 and Y 1. 
C)  P 4 and Y 1. 
D)  P 4 and Y 2. 
A)  P 1 and Y 1. 
B)  P 3 and Y 1. 
C)  P 4 and Y 1. 
D)  P 4 and Y 2.

Question 12

When are firms willing to change the aggregate quantity of output supplied based on price?

Accepted Answer

A)  In the short run only 
B)  In the long run only 
C)  In the short and long run 
D)  Price never affects the quantity that firms supply. 
A)  In the short run only 
B)  In the long run only 
C)  In the short and long run 
D)  Price never affects the quantity that firms supply.

Question 13

The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  perfectly elastic. 
D)  perfectly inelastic. 
A)  downward sloping. 
B)  upward sloping. 
C)  perfectly elastic. 
D)  perfectly inelastic.

Question 14

During the 1970s, the U.S. economy experienced high rates of inflation and limited economic growth. This phenomenon is often called:

Accepted Answer

A)  stagflation. 
B)  inflagnation. 
C)  contractionary policy. 
D)  economic malaise. 
A)  stagflation. 
B)  inflagnation. 
C)  contractionary policy. 
D)  economic malaise.

Question 15

If an economy is in a recession, the government might _______ spending to _______ aggregate demand.

Accepted Answer

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

Question 16

The aggregate supply and aggregate demand model describes the:

Accepted Answer

A)  overall health of the economy. 
B)  overall effect of large markets within the economy. 
C)  way sellers and buyers interact within a particular market. 
D)  way unemployment affects output, ignoring the impact of the price level. 
A)  overall health of the economy. 
B)  overall effect of large markets within the economy. 
C)  way sellers and buyers interact within a particular market. 
D)  way unemployment affects output, ignoring the impact of the price level.

Question 17

The aggregate supply curve shows:

Accepted Answer

A)  the relationship between the overall price level and firms' total production. 
B)  the relationship between the overall price level and firms' investment decisions. 
C)  the total production of all firms in an economy at every given demand level. 
D)  the total production of all firms in an economy for every level of profit. 
A)  the relationship between the overall price level and firms' total production. 
B)  the relationship between the overall price level and firms' investment decisions. 
C)  the total production of all firms in an economy at every given demand level. 
D)  the total production of all firms in an economy for every level of profit.

Question 18

If U.S. prices increase relative to the rest of the world, we would expect imports to _______ and exports to _______.

Accepted Answer

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

Question 19

A temporary decrease in the price of oil is a:

Accepted Answer

A)  short-run supply shock. 
B)  long-run supply shock. 
C)  demand shock. 
D)  The changing price of oil would not influence aggregate demand or supply. 
A)  short-run supply shock. 
B)  long-run supply shock. 
C)  demand shock. 
D)  The changing price of oil would not influence aggregate demand or supply.

Question 20

The long-run aggregate supply curve:

Accepted Answer

A)  is affected by the price level. 
B)  never moves. 
C)  shifts to the right when the economy experiences economic growth. 
D)  shifts to the left when the economy experiences economic growth. 
A)  is affected by the price level. 
B)  never moves. 
C)  shifts to the right when the economy experiences economic growth. 
D)  shifts to the left when the economy experiences economic growth.

What occurs when the price level increases?

Which of the following is not a cost of production?

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

Which of the following is a component of aggregate demand?

The government might increase spending to end a recession because:

Increases in the overall price level:

If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

If an economy is in a recession, it means that:

Which of the following events would cause a demand shock?

When the economy produces less than its potential output, it is:

The figure shown displays various economic outcomes. If the aggregate demand curve shifts from AD₂ to AD₁, the resulting price and output in the short run would be:

When are firms willing to change the aggregate quantity of output supplied based on price?

The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

During the 1970s, the U.S. economy experienced high rates of inflation and limited economic growth. This phenomenon is often called:

If an economy is in a recession, the government might _ spending to _ aggregate demand.

The aggregate supply and aggregate demand model describes the:

The aggregate supply curve shows:

If U.S. prices increase relative to the rest of the world, we would expect imports to _ and exports to _.

A temporary decrease in the price of oil is a:

The long-run aggregate supply curve:

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Exam 12: Aggregatedemand and Aggregate Supply

What occurs when the price level increases?

Which of the following is not a cost of production?

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to increase spending to restore potential output?

Which of the following is a component of aggregate demand?

The government might increase spending to end a recession because:

Increases in the overall price level:

If the government increases spending by $400 billion, and the MPC is 0.75, the change in GDP will be:

If an economy is in a recession, it means that:

Which of the following events would cause a demand shock?

When the economy produces less than its potential output, it is:

The figure shown displays various economic outcomes. If the aggregate demand curve shifts from AD2 to AD1, the resulting price and output in the short run would be:

When are firms willing to change the aggregate quantity of output supplied based on price?

The negative relationship that exists between the price level and aggregate expenditure partially explains why the aggregate demand curve is:

During the 1970s, the U.S. economy experienced high rates of inflation and limited economic growth. This phenomenon is often called:

If an economy is in a recession, the government might _______ spending to _______ aggregate demand.

The aggregate supply and aggregate demand model describes the:

The aggregate supply curve shows:

If U.S. prices increase relative to the rest of the world, we would expect imports to _______ and exports to _______.

A temporary decrease in the price of oil is a:

The long-run aggregate supply curve:

Economicsand Life

Specializationand Exchange

Markets

Elasticity

Efficiency

Governmentintervention

Measuringgdp

Thecost of Living

Unemploymentand the Labor Market

Economicgrowth

Aggregateexpenditures

Fiscalpolicy

Thebasics of Finance

Moneyand the Monetary System

Inflation

Financialcrisis

Open-Marketmacroeconomics

Developmenteconomics

Filters

The figure shown displays various economic outcomes. If the aggregate demand curve shifts from AD₂ to AD₁, the resulting price and output in the short run would be:

If an economy is in a recession, the government might _ spending to _ aggregate demand.

If U.S. prices increase relative to the rest of the world, we would expect imports to _ and exports to _.