Question 1

In the short-run, an output gap occurs because

Accepted Answer

A) there is insufficient demand for goods and services. 
B) there is insufficient supply of goods and services. 
C) wages and prices are fully flexible. 
D) wages and some prices have not adjusted sufficiently to maintain output at its potential level. 
A) there is insufficient demand for goods and services. 
B) there is insufficient supply of goods and services. 
C) wages and prices are fully flexible. 
D) wages and some prices have not adjusted sufficiently to maintain output at its potential level.

Question 2

Use the following to answer questions 
Exhibit: Long-run Equilibrium  
-(Exhibit: Long-run Equilibrium)
The potential output in this economy is

Accepted Answer

A) $6,000 billion at a price level of 1.08. 
B) $7,000 billion at a price level of 1.12. 
C) $7, 100 billion at a price level of 1.16. 
D) $7,056 billion at a price level of 1.08. 
A) $6,000 billion at a price level of 1.08. 
B) $7,000 billion at a price level of 1.12. 
C) $7, 100 billion at a price level of 1.16. 
D) $7,056 billion at a price level of 1.08.

Question 3

Use the following to answer questions 
Exhibit: Short-run Aggregate Supply  
-(Exhibit: Short-run Aggregate Supply)
Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.What happens in the short-run?

Accepted Answer

A) Real GDP remains at Y1 but the price level falls to P3. 
B) The quantity of real GDP demanded falls resulting in a movement from point A to point F. 
C) Real GDP decreases to Y3 and the price level falls to P3. 
D) The economy moves to a short-run equilibrium at point D. 
A) Real GDP remains at Y1 but the price level falls to P3. 
B) The quantity of real GDP demanded falls resulting in a movement from point A to point F. 
C) Real GDP decreases to Y3 and the price level falls to P3. 
D) The economy moves to a short-run equilibrium at point D.

Question 4

An economy adjusts on its own to close an inflationary gap because there is

Accepted Answer

A) pressure on nominal wages to fall and this shifts the SRAS curve rightward. 
B) pressure on nominal wages to rise and this shifts the SRAS curve rightward. 
C) pressure on nominal wages to fall and this shifts the SRAS curve leftward. 
D) pressure on nominal wages to rise and this shifts the SRAS curve leftward. 
A) pressure on nominal wages to fall and this shifts the SRAS curve rightward. 
B) pressure on nominal wages to rise and this shifts the SRAS curve rightward. 
C) pressure on nominal wages to fall and this shifts the SRAS curve leftward. 
D) pressure on nominal wages to rise and this shifts the SRAS curve leftward.

Question 5

Which of the following is an explanation for price stickiness?
I.There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II.Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III.Firms may have explicit long-term contracts to sell their products to other firms at specified prices.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 6

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

Accepted Answer

A) the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves. 
B) the short-run aggregate supply and the long-run aggregate supply curves. 
C) the aggregate demand and the short-run aggregate supply curves. 
D) the aggregate demand and the long-run aggregate supply curves. 
A) the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves. 
B) the short-run aggregate supply and the long-run aggregate supply curves. 
C) the aggregate demand and the short-run aggregate supply curves. 
D) the aggregate demand and the long-run aggregate supply curves.

Question 7

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-In the short run, all prices are flexible.

Accepted Answer

A) True 
 B)False

Question 9

Wage and price stickiness

Accepted Answer

A) gives rise to a vertical long-run aggregate supply curve. 
B) gives rise to a vertical short-run aggregate supply curve. 
C) creates a surplus or a shortage of real GDP. 
D) prevents the economy from producing its potential level of real GDP. 
A) gives rise to a vertical long-run aggregate supply curve. 
B) gives rise to a vertical short-run aggregate supply curve. 
C) creates a surplus or a shortage of real GDP. 
D) prevents the economy from producing its potential level of real GDP.

Question 10

Aggregate demand is defined as

Accepted Answer

A) the demand for goods and services generated by all sectors in the economy, holding price level constant. 
B) the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged. 
C) the relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged. 
D) the relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged. 
A) the demand for goods and services generated by all sectors in the economy, holding price level constant. 
B) the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged. 
C) the relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged. 
D) the relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged.

Question 11

All of the following contributed to the U.S.recession of 2001 except

Accepted Answer

A) a decrease in business investment both for computers and software and in structures. 
B) an appreciation in the value of the U.S.dollar relative to the currencies of its trading partners. 
C) an increase in new residential construction. 
D) a fall in stock market prices. 
A) a decrease in business investment both for computers and software and in structures. 
B) an appreciation in the value of the U.S.dollar relative to the currencies of its trading partners. 
C) an increase in new residential construction. 
D) a fall in stock market prices.

Question 12

A movement along the short-run aggregate supply curve in response to a change in the price level is called a

Accepted Answer

A) determinant of aggregate supply. 
B) revealed cost on aggregate supply. 
C) change in aggregate supply. 
D) change in the aggregate quantity of goods and services supplied. 
A) determinant of aggregate supply. 
B) revealed cost on aggregate supply. 
C) change in aggregate supply. 
D) change in the aggregate quantity of goods and services supplied.

Question 13

Aggregate demand is the total value of real GDP that

Accepted Answer

A) all sectors of the economy are willing to purchase at various average price levels, all other things unchanged. 
B) all sectors of the economy are willing to sell at various average price levels, all other things unchanged. 
C) consumers are willing to purchase at various average price levels, all other things unchanged. 
D) consumers are willing to purchase at various national income levels, all other things unchanged. 
A) all sectors of the economy are willing to purchase at various average price levels, all other things unchanged. 
B) all sectors of the economy are willing to sell at various average price levels, all other things unchanged. 
C) consumers are willing to purchase at various average price levels, all other things unchanged. 
D) consumers are willing to purchase at various national income levels, all other things unchanged.

Question 14

Suppose that government spending on defense rises by $50 billion.What happens to the aggregate demand curve if the multiplier is greater than 1?

Accepted Answer

A) It shifts right by $50 billion at each price level. 
B) It shifts right by more than $50 billion at each price level. 
C) It shifts right by less than $50 billion at each price level. 
D) The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level. 
A) It shifts right by $50 billion at each price level. 
B) It shifts right by more than $50 billion at each price level. 
C) It shifts right by less than $50 billion at each price level. 
D) The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level.

Question 15

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

Accepted Answer

A) the SRAS curve. 
B) the AD curve. 
C) the LRAS curve. 
D) both the SRAS and the LRAS curves. 
A) the SRAS curve. 
B) the AD curve. 
C) the LRAS curve. 
D) both the SRAS and the LRAS curves.

Question 16

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels)
The table shows the aggregate demand and short-run aggregate supply curves for an economy.The potential level of output is $7.6 trillion.What kind of gap, if any, exists and what is the size of the gap?

Accepted Answer

A) No gap exists because the economy is in equilibrium. 
B) There is a recessionary gap of $0.8 trillion. 
C) There is a recessionary gap of $0.2 trillion. 
D) There is an inflationary gap of $1 trillion. 
A) No gap exists because the economy is in equilibrium. 
B) There is a recessionary gap of $0.8 trillion. 
C) There is a recessionary gap of $0.2 trillion. 
D) There is an inflationary gap of $1 trillion.

Question 17

Use the following to answer questions 
Exhibit: Short-run Aggregate Supply  
-(Exhibit: Short-run Aggregate Supply)
Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.As a result,

Accepted Answer

A) the economy's potential output decreases to Y3. 
B) unemployment is below its natural rate. 
C) the economy moves to a new long-run equilibrium at point C. 
D) there is some cyclical unemployment. 
A) the economy's potential output decreases to Y3. 
B) unemployment is below its natural rate. 
C) the economy moves to a new long-run equilibrium at point C. 
D) there is some cyclical unemployment.

Question 18

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2)
Suppose the economy is initially in short-run equilibrium at K.Which of the following stabilization policies could be used to close the gap?

Accepted Answer

A) Decrease government welfare spending 
B) Decrease personal income taxes 
C) Decrease government spending on defense 
D) Increase payroll taxes 
A) Decrease government welfare spending 
B) Decrease personal income taxes 
C) Decrease government spending on defense 
D) Increase payroll taxes

Question 19

Which of the following is false about potential output?

Accepted Answer

A) It is the level of output an economy can achieve when labor is employed at its natural level. 
B) It is the long run output level that guarantees price stability. 
C) It is also called the natural level of real GDP. 
D) If a country is producing its potential output, then it is producing at a point on its production possibilities frontier. 
A) It is the level of output an economy can achieve when labor is employed at its natural level. 
B) It is the long run output level that guarantees price stability. 
C) It is also called the natural level of real GDP. 
D) If a country is producing its potential output, then it is producing at a point on its production possibilities frontier.

Question 20

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Accepted Answer

A) It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. 
B) It refers to the effect of interest rates on borrowing which in turn affects consumption spending. 
C) It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. 
D) It refers to the shifts in aggregate demand when interest rates change. 
A) It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates. 
B) It refers to the effect of interest rates on borrowing which in turn affects consumption spending. 
C) It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded. 
D) It refers to the shifts in aggregate demand when interest rates change.

In the short-run, an output gap occurs because

Use the following to answer questions Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) The potential output in this economy is

Use the following to answer questions Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.What happens in the short-run?

An economy adjusts on its own to close an inflationary gap because there is

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -In the short run, all prices are flexible.

Wage and price stickiness

Aggregate demand is defined as

All of the following contributed to the U.S.recession of 2001 except

A movement along the short-run aggregate supply curve in response to a change in the price level is called a

Aggregate demand is the total value of real GDP that

Suppose that government spending on defense rises by $50 billion.What happens to the aggregate demand curve if the multiplier is greater than 1?

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

Use the following to answer questions Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.As a result,

Which of the following is false about potential output?

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

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Exam 7: Aggregate Demand and Aggregate Supply

In the short-run, an output gap occurs because

Use the following to answer questions Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) The potential output in this economy is

Use the following to answer questions Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.What happens in the short-run?

An economy adjusts on its own to close an inflationary gap because there is

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -In the short run, all prices are flexible.

Wage and price stickiness

Aggregate demand is defined as

All of the following contributed to the U.S.recession of 2001 except

A movement along the short-run aggregate supply curve in response to a change in the price level is called a

Aggregate demand is the total value of real GDP that

Suppose that government spending on defense rises by $50 billion.What happens to the aggregate demand curve if the multiplier is greater than 1?

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift

Use the following to answer questions Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A.Now suppose the stock market crashes, significantly reducing household wealth.As a result,

Which of the following is false about potential output?

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters