Question 1

The use central bank policies to influence the level of economic activity is called

Accepted Answer

A) banking and finance policy. 
B) financial market policy. 
C) monetary policy. 
D) congressional policy. 
A) banking and finance policy. 
B) financial market policy. 
C) monetary policy. 
D) congressional policy.

Question 2

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 net exports increase.What happens in the long-run, all other things unchanged?

Accepted Answer

A) The economy will return to its initial equilibrium at point A. 
B) Equilibrium will be re-established at point B with a higher potential output. 
C) Equilibrium will be re-established at point E at a higher price level. 
D) The aggregate demand curve will shift back to AD1. 
A) The economy will return to its initial equilibrium at point A. 
B) Equilibrium will be re-established at point B with a higher potential output. 
C) Equilibrium will be re-established at point E at a higher price level. 
D) The aggregate demand curve will shift back to AD1.

Question 3

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 in short-run equilibrium at B.A shift from AD1 to AD2 could have been caused by all of the following except

Accepted Answer

A) an increase in consumer optimism. 
B) economic prosperity in foreign economies. 
C) a personal income tax cut. 
D) an increase in the price level from Pa to Pb. 
A) an increase in consumer optimism. 
B) economic prosperity in foreign economies. 
C) a personal income tax cut. 
D) an increase in the price level from Pa to Pb.

Question 4

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Accepted Answer

A) The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B) The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C) The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D) The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis. 
A) The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis. 
B) The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis. 
C) The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis. 
D) The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis.

Question 5

Long-run aggregate supply corresponds to the level of potential output.

Accepted Answer

A) True 
 B)False

Question 6

What are the four sources of aggregate demand?

Accepted Answer

A) Consumption, private investment, taxes, and expenditures 
B) Consumption, private investment, wage increases, and government expenditures 
C) Consumption, private investment, expenditures, and net exports 
D) Consumption, private investment, government purchases, and net exports 
A) Consumption, private investment, taxes, and expenditures 
B) Consumption, private investment, wage increases, and government expenditures 
C) Consumption, private investment, expenditures, and net exports 
D) Consumption, private investment, government purchases, and net exports

Question 7

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 net exports increase.In the short run,

Accepted Answer

A) unemployment is above its natural level. 
B) those who were cyclically unemployed will now find jobs at the going nominal wage rate. 
C) those who were structurally or frictionally unemployed will now find jobs at the going nominal wage rate. 
D) the nominal wage rate rises. 
A) unemployment is above its natural level. 
B) those who were cyclically unemployed will now find jobs at the going nominal wage rate. 
C) those who were structurally or frictionally unemployed will now find jobs at the going nominal wage rate. 
D) the nominal wage rate rises.

Question 8

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 is the initial real GDP and price level?

Accepted Answer

A) Real GDP = 7.6 trillion; price level = 1.2 
B) Real GDP = 7.6 trillion; price level = 2.8 
C) Real GDP = 6.8 trillion; price level = 2.0 
D) Real GDP = 7.8 trillion; price level = 1.0 
A) Real GDP = 7.6 trillion; price level = 1.2 
B) Real GDP = 7.6 trillion; price level = 2.8 
C) Real GDP = 6.8 trillion; price level = 2.0 
D) Real GDP = 7.8 trillion; price level = 1.0

Question 9

The short-run aggregate supply curve slopes upward because of

Accepted Answer

A) wage and price stickiness. 
B) wage and price flexibility. 
C) increasing technology. 
D) a reduction in resource availability at higher price levels. 
A) wage and price stickiness. 
B) wage and price flexibility. 
C) increasing technology. 
D) a reduction in resource availability at higher price levels.

Question 10

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 point A.Now suppose that there is an increase in government purchases.In the short-run,

Accepted Answer

A) the price level rises to Pb and real GDP increases to Yb. 
B) the price level rises to Pd. 
C) the aggregate supply curve shifts up to SRAS2. 
D) the economy's potential output increases to Yb. 
A) the price level rises to Pb and real GDP increases to Yb. 
B) the price level rises to Pd. 
C) the aggregate supply curve shifts up to SRAS2. 
D) the economy's potential output increases to Yb.

Question 11

The strong dollar in 2001

Accepted Answer

A) made U.S.exports more attractive relative to foreign goods, thereby increasing U.S.exports. 
B) made U.S.exports more expensive relative to foreign goods, thereby reducing U.S.exports. 
C) made U.S.imports more expensive, thereby reducing aggregate demand. 
D) made U.S.imports more attractive, thereby increasing aggregate demand. 
A) made U.S.exports more attractive relative to foreign goods, thereby increasing U.S.exports. 
B) made U.S.exports more expensive relative to foreign goods, thereby reducing U.S.exports. 
C) made U.S.imports more expensive, thereby reducing aggregate demand. 
D) made U.S.imports more attractive, thereby increasing aggregate demand.

Question 12

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) the economy is not in equilibrium because it operates with an output gap. 
B) the economy is in short-run equilibrium and it operates with an inflationary gap. 
C) the economy is in short-run equilibrium and it operates with a recessionary gap. 
D) the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment. 
A) the economy is not in equilibrium because it operates with an output gap. 
B) the economy is in short-run equilibrium and it operates with an inflationary gap. 
C) the economy is in short-run equilibrium and it operates with a recessionary gap. 
D) the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment.

Question 13

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) A decrease in wages 
B) A decrease in the labor force 
C) A decrease in net exports 
D) A decrease in the price level 
A) A decrease in wages 
B) A decrease in the labor force 
C) A decrease in net exports 
D) A decrease in the price level

Question 15

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
  
-The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Accepted Answer

A) True 
 B)False

Question 16

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.Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own.What is the difference between the two policy choices, if any?

Accepted Answer

A) Both policies would return real GDP to its potential at a price level of Pj. 
B) Both policies would return real GDP to its potential at a price level of Ph. 
C) A stabilization policy would return real GDP to its potential at a price level of Pj while a nonintervention policy would return real GDP to its potential at a price level of Ph. 
D) A stabilization policy would return real GDP to its potential at a price level of Ph while a nonintervention policy would return real GDP to its potential at a price level of Pj. 
A) Both policies would return real GDP to its potential at a price level of Pj. 
B) Both policies would return real GDP to its potential at a price level of Ph. 
C) A stabilization policy would return real GDP to its potential at a price level of Pj while a nonintervention policy would return real GDP to its potential at a price level of Ph. 
D) A stabilization policy would return real GDP to its potential at a price level of Ph while a nonintervention policy would return real GDP to its potential at a price level of Pj.

Question 17

The short run in macroeconomic analysis is a period

Accepted Answer

A) in which wages and some other prices do not respond to changes in economic conditions. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) of less than 12 months. 
D) in which all macroeconomic variables are fixed. 
A) in which wages and some other prices do not respond to changes in economic conditions. 
B) in which full wage and price flexibility and market adjustment have been achieved. 
C) of less than 12 months. 
D) in which all macroeconomic variables are fixed.

Question 18

All else constant, a lower price level

Accepted Answer

A) increases imports and decreases exports, resulting in a downward movement along the economy's aggregate demand curve. 
B) decreases imports and increases exports, resulting in an upward movement along the economy's aggregate demand curve. 
C) increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve. 
D) decreases imports and increases exports, resulting in a downward movement along the economy's aggregate demand curve. 
A) increases imports and decreases exports, resulting in a downward movement along the economy's aggregate demand curve. 
B) decreases imports and increases exports, resulting in an upward movement along the economy's aggregate demand curve. 
C) increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve. 
D) decreases imports and increases exports, resulting in a downward movement along the economy's aggregate demand curve.

Question 19

If an economy is operating at its potential output level, a change in aggregate demand or short-run aggregate supply will induce an inflationary or a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 20

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

Accepted Answer

A) A change in aggregate supply is represented by a movement along the aggregate supply curve in response to a price change, while a change in aggregate output supplied is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level. 
B) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in the actual price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the expected price level. 
C) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the price level. 
D) There is no difference between the two terms. 
A) A change in aggregate supply is represented by a movement along the aggregate supply curve in response to a price change, while a change in aggregate output supplied is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level. 
B) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in the actual price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the expected price level. 
C) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the price level. 
D) There is no difference between the two terms.

The use central bank policies to influence the level of economic activity is called

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 net exports increase.What happens in the long-run, all other things unchanged?

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Long-run aggregate supply corresponds to the level of potential output.

What are the four sources of aggregate demand?

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 net exports increase.In the short run,

The short-run aggregate supply curve slopes upward because of

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 point A.Now suppose that there is an increase in government purchases.In the short-run,

The strong dollar in 2001

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,

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

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

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

The short run in macroeconomic analysis is a period

All else constant, a lower price level

If an economy is operating at its potential output level, a change in aggregate demand or short-run aggregate supply will induce an inflationary or a recessionary gap.

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

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

The use central bank policies to influence the level of economic activity is called

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 net exports increase.What happens in the long-run, all other things unchanged?

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Long-run aggregate supply corresponds to the level of potential output.

What are the four sources of aggregate demand?

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 net exports increase.In the short run,

The short-run aggregate supply curve slopes upward because of

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 point A.Now suppose that there is an increase in government purchases.In the short-run,

The strong dollar in 2001

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,

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

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

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

The short run in macroeconomic analysis is a period

All else constant, a lower price level

If an economy is operating at its potential output level, a change in aggregate demand or short-run aggregate supply will induce an inflationary or a recessionary gap.

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

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,