Question 1

Which of the following will increase the aggregate quantity of output supplied?

Accepted Answer

A) An increase in input prices 
B) An increase in the average price level 
C) A technological advancement 
D) An increase in net exports 
A) An increase in input prices 
B) An increase in the average price level 
C) A technological advancement 
D) An increase in net exports

Question 2

Which of the following best explains why cities want business conventions, political conventions, and major sports events to be held in their town?

Accepted Answer

A) Because these activities will boost tourism and attract people who will create a demand for the city's goods and services. 
B) Because this initial change in spending generated by these activities begins the multiplier process so that the final increase in the city's real GDP demanded is much larger than the initial spending on these activities alone would cause. 
C) Because federal and state spending in these cities will increase, thus initiating the multiplier process. 
D) Because these activities create jobs and boost spending, which in turn increases the city's tax revenues from income and sales. 
A) Because these activities will boost tourism and attract people who will create a demand for the city's goods and services. 
B) Because this initial change in spending generated by these activities begins the multiplier process so that the final increase in the city's real GDP demanded is much larger than the initial spending on these activities alone would cause. 
C) Because federal and state spending in these cities will increase, thus initiating the multiplier process. 
D) Because these activities create jobs and boost spending, which in turn increases the city's tax revenues from income and sales.

Question 3

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2)
At output level YK,

Accepted Answer

A) potential output is less than actual output. 
B) there is a surplus of real GDP. 
C) the unemployment rate exceeds the natural rate of unemployment. 
D) over time aggregate demand will rise to restore long-run equilibrium. 
A) potential output is less than actual output. 
B) there is a surplus of real GDP. 
C) the unemployment rate exceeds the natural rate of unemployment. 
D) over time aggregate demand will rise to restore long-run equilibrium.

Question 4

The long run in macroeconomic analysis is a period

Accepted Answer

A) in which wages and some other prices are sticky. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) greater than 12 months. 
D) in which the capital stock is held constant. 
A) in which wages and some other prices are sticky. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) greater than 12 months. 
D) in which the capital stock is held constant.

Question 5

All of the following are held constant along a short-run aggregate supply curve except

Accepted Answer

A) factor prices. 
B) output prices. 
C) nominal wages. 
D) capital stock. 
A) factor prices. 
B) output prices. 
C) nominal wages. 
D) capital stock.

Question 6

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to a decrease in the price level and an increase in real GDP in the short run?

Accepted Answer

A) A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B) An increase in government transfer payments 
C) An increase in the cost of a key input such as oil 
D) A sharp fall in stock market prices 
A) A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B) An increase in government transfer payments 
C) An increase in the cost of a key input such as oil 
D) A sharp fall in stock market prices

Question 7

The multiplier is given by

Accepted Answer

A) the ratio of the initial change in a component of aggregate demand to the change in the quantity of real GDP demanded at each price level. 
B) the ratio of the change in the quantity of real GDP demanded at each price level to the initial change in a component of aggregate demand that produced it. 
C) the amount by which the quantity of real GDP demanded at each price level changes in response to an initial change in a component of aggregate demand. 
D) the percentage change between the initial change in a component of aggregate demand and the final change in the quantity of real GDP demanded at each price level. 
A) the ratio of the initial change in a component of aggregate demand to the change in the quantity of real GDP demanded at each price level. 
B) the ratio of the change in the quantity of real GDP demanded at each price level to the initial change in a component of aggregate demand that produced it. 
C) the amount by which the quantity of real GDP demanded at each price level changes in response to an initial change in a component of aggregate demand. 
D) the percentage change between the initial change in a component of aggregate demand and the final change in the quantity of real GDP demanded at each price level.

Question 8

To eliminate a recessionary gap, policy-makers may pursue

Accepted Answer

A) an expansionary policy that increases aggregate demand. 
B) a contractionary policy that increases aggregate demand. 
C) a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand. 
D) an intervention policy that decreases aggregate supply and increases aggregate demand. 
A) an expansionary policy that increases aggregate demand. 
B) a contractionary policy that increases aggregate demand. 
C) a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand. 
D) an intervention policy that decreases aggregate supply and increases aggregate demand.

Question 9

Changes in aggregate demand can be caused by changes in
I.wages.
II.raw materials costs.
III.government spending.
IV.government regulations that increase the cost of doing business.

Accepted Answer

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

Question 10

The rise and fall of real GDP over the course of the business cycle suggests that

Accepted Answer

A) the economy is always at full employment. 
B) the economy may not always be in long-run equilibrium. 
C) the economy is always at its potential output level. 
D) wage and price stickiness ensures that the economy moves from a peak to a trough. 
A) the economy is always at full employment. 
B) the economy may not always be in long-run equilibrium. 
C) the economy is always at its potential output level. 
D) wage and price stickiness ensures that the economy moves from a peak to a trough.

Question 11

Use the following to answer questions 
Exhibit: Long-run Equilibrium  
-(Exhibit: Long-run Equilibrium)
Based on the figure, we can conclude that

Accepted Answer

A) in the short run, the economy will always achieve full-employment equilibrium. 
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level. 
C) flexible wages and prices are irrelevant since the LRAS curve is vertical. 
D) in the long run, the aggregate demand curve determines the potential output level. 
A) in the short run, the economy will always achieve full-employment equilibrium. 
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level. 
C) flexible wages and prices are irrelevant since the LRAS curve is vertical. 
D) in the long run, the aggregate demand curve determines the potential output level.

Question 12

A change in the aggregate quantity of goods and services supplied at every price level is called a

Accepted Answer

A) change in short-run aggregate supply. 
B) change in long-run aggregate supply. 
C) change in short-run aggregate quantity of output supplied. 
D) determinant of short-run aggregate supply. 
A) change in short-run aggregate supply. 
B) change in long-run aggregate supply. 
C) change in short-run aggregate quantity of output supplied. 
D) determinant of short-run aggregate supply.

Question 13

Which of the following will increase the short-run aggregate supply?

Accepted Answer

A) An increase in wages 
B) A decrease in the price of capital 
C) An increase in government spending on education 
D) An increase in consumption spending 
A) An increase in wages 
B) A decrease in the price of capital 
C) An increase in government spending on education 
D) An increase in consumption spending

Question 14

Which of the following occurs if an economy experiences an inflationary gap?
I.Actual real GDP is less than potential output.
II.Actual real GDP is greater than potential output.
III.Unemployment is less than the natural rate.
IV.Unemployment is greater than the natural rate.

Accepted Answer

A) I and III 
B) I and IV 
C) II and III 
D) II and IV 
A) I and III 
B) I and IV 
C) II and III 
D) II and IV

Question 15

Suppose that product prices start rising but nominal wages do not.In that case,

Accepted Answer

A) real wages will fall and firms will want to produce more because doing so will be profitable. 
B) real wages will rise and firms will want to produce more because doing so will be profitable. 
C) there will be a surplus of goods and services produced. 
D) there will be a shortage of goods and services produced. 
A) real wages will fall and firms will want to produce more because doing so will be profitable. 
B) real wages will rise and firms will want to produce more because doing so will be profitable. 
C) there will be a surplus of goods and services produced. 
D) there will be a shortage of goods and services produced.

Question 16

What do economists mean by the term "sticky wage"?

Accepted Answer

A) It refers to the reluctance by employers to decrease nominal wages during an inflationary period. 
B) It refers to a wage that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus in the labor market. 
C) It refers to a breakdown in wage negotiations between employers and employee unions. 
D) It refers to a union negotiated wage. 
A) It refers to the reluctance by employers to decrease nominal wages during an inflationary period. 
B) It refers to a wage that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus in the labor market. 
C) It refers to a breakdown in wage negotiations between employers and employee unions. 
D) It refers to a union negotiated wage.

Question 17

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1)
Suppose the economy is initially at A.Now suppose an increase in government purchases shifts the aggregate demand curve to AD2.Which of the following is false about the economy after it adjusts to its new long-run equilibrium?

Accepted Answer

A) Nominal wages increase. 
B) The price level rises to Pd. 
C) Firms employ more workers than in the short-run equilibrium. 
D) There is some frictional and structural unemployment. 
A) Nominal wages increase. 
B) The price level rises to Pd. 
C) Firms employ more workers than in the short-run equilibrium. 
D) There is some frictional and structural unemployment.

Question 18

When an economy fails to produce at its potential,
I.there may be actions that the government or the central bank can take to push the economy toward its potential.
II.the unemployment rate is below its natural rate.
III.the average price level is likely to rise.

Accepted Answer

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

Question 19

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 at K.Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

Accepted Answer

A) Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. 
B) Rising unemployment puts pressure on nominal wages to fall.The SRAS curve shifts right to SRAS1 closing the gap at H. 
C) In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. 
D) Rising unemployment puts pressure on nominal wages to fall.Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed. 
A) Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. 
B) Rising unemployment puts pressure on nominal wages to fall.The SRAS curve shifts right to SRAS1 closing the gap at H. 
C) In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. 
D) Rising unemployment puts pressure on nominal wages to fall.Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed.

Question 20

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

Accepted Answer

A) True 
 B)False

Which of the following will increase the aggregate quantity of output supplied?

Which of the following best explains why cities want business conventions, political conventions, and major sports events to be held in their town?

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level Y_K,

The long run in macroeconomic analysis is a period

All of the following are held constant along a short-run aggregate supply curve except

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to a decrease in the price level and an increase in real GDP in the short run?

The multiplier is given by

To eliminate a recessionary gap, policy-makers may pursue

Changes in aggregate demand can be caused by changes in I.wages. II.raw materials costs. III.government spending. IV.government regulations that increase the cost of doing business.

The rise and fall of real GDP over the course of the business cycle suggests that

Use the following to answer questions Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) Based on the figure, we can conclude that

A change in the aggregate quantity of goods and services supplied at every price level is called a

Which of the following will increase the short-run aggregate supply?

Which of the following occurs if an economy experiences an inflationary gap? I.Actual real GDP is less than potential output. II.Actual real GDP is greater than potential output. III.Unemployment is less than the natural rate. IV.Unemployment is greater than the natural rate.

Suppose that product prices start rising but nominal wages do not.In that case,

What do economists mean by the term "sticky wage"?

When an economy fails to produce at its potential, I.there may be actions that the government or the central bank can take to push the economy toward its potential. II.the unemployment rate is below its natural rate. III.the average price level is likely to rise.

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

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

Exam 7: Aggregate Demand and Aggregate Supply

Which of the following will increase the aggregate quantity of output supplied?

Which of the following best explains why cities want business conventions, political conventions, and major sports events to be held in their town?

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level YK,

The long run in macroeconomic analysis is a period

All of the following are held constant along a short-run aggregate supply curve except

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to a decrease in the price level and an increase in real GDP in the short run?

The multiplier is given by

To eliminate a recessionary gap, policy-makers may pursue

Changes in aggregate demand can be caused by changes in I.wages. II.raw materials costs. III.government spending. IV.government regulations that increase the cost of doing business.

The rise and fall of real GDP over the course of the business cycle suggests that

Use the following to answer questions Exhibit: Long-run Equilibrium -(Exhibit: Long-run Equilibrium) Based on the figure, we can conclude that

A change in the aggregate quantity of goods and services supplied at every price level is called a

Which of the following will increase the short-run aggregate supply?

Which of the following occurs if an economy experiences an inflationary gap? I.Actual real GDP is less than potential output. II.Actual real GDP is greater than potential output. III.Unemployment is less than the natural rate. IV.Unemployment is greater than the natural rate.

Suppose that product prices start rising but nominal wages do not.In that case,

What do economists mean by the term "sticky wage"?

When an economy fails to produce at its potential, I.there may be actions that the government or the central bank can take to push the economy toward its potential. II.the unemployment rate is below its natural rate. III.the average price level is likely to rise.

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

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

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) At output level Y_K,