Question 1

When firms cut back production:

Accepted Answer

A) they employ more people, so unemployment rises 
B) they employ more people, so unemployment falls 
C) they employ fewer people, so unemployment rises 
D) they employ fewer people, so unemployment falls 
A) they employ more people, so unemployment rises 
B) they employ more people, so unemployment falls 
C) they employ fewer people, so unemployment rises 
D) they employ fewer people, so unemployment falls

Question 2

The long-run aggregate supply is called:

Accepted Answer

A) potential output 
B) full-employment output 
C) natural rate of output 
D) all of the above 
A) potential output 
B) full-employment output 
C) natural rate of output 
D) all of the above

Question 3

The short-run aggregate curve's shape is affected by the economy's position in regards to full employment.

Accepted Answer

A) True 
 B)False

Question 4

Keynes's interest-rate effect implies that a lower price level:

Accepted Answer

A) reduces the interest rate and reduces the quantity of goods and services demanded 
B) reduces the interest rate and increases the quantity of goods and services demanded 
C) increases the interest rate and increases the quantity of goods and services demanded 
D) increases the interest rate and reduces the quantity of goods and services demanded 
A) reduces the interest rate and reduces the quantity of goods and services demanded 
B) reduces the interest rate and increases the quantity of goods and services demanded 
C) increases the interest rate and increases the quantity of goods and services demanded 
D) increases the interest rate and reduces the quantity of goods and services demanded

Question 5

Most economists believe that in the short run:

Accepted Answer

A) real and nominal variables are highly interrelated 
B) only real variables are highly interrelated 
C) only nominal variables are highly interrelated 
D) none of the above 
A) real and nominal variables are highly interrelated 
B) only real variables are highly interrelated 
C) only nominal variables are highly interrelated 
D) none of the above

Question 6

A prolonged period of falling incomes and rising unemployment is called:

Accepted Answer

A) a recession 
B) a boom 
C) a business cycle 
D) a depression 
A) a recession 
B) a boom 
C) a business cycle 
D) a depression

Question 7

When an increase in the economy's capital stock increases productivity:

Accepted Answer

A) the short-run aggregate-supply curve shifts to the right, and the long-run aggregate-supply curve shifts to the left 
B) the short-run aggregate-supply curve shifts to the left, and the long-run aggregate-supply curve shifts to the right 
C) both short-run and long-run aggregate-supply curves shift to the left 
D) both short-run and long-run aggregate-supply curves shift to the right 
A) the short-run aggregate-supply curve shifts to the right, and the long-run aggregate-supply curve shifts to the left 
B) the short-run aggregate-supply curve shifts to the left, and the long-run aggregate-supply curve shifts to the right 
C) both short-run and long-run aggregate-supply curves shift to the left 
D) both short-run and long-run aggregate-supply curves shift to the right

Question 8

The Pigou effect implies that:

Accepted Answer

A) when the price level decreases, consumer purchasing power goes up, and therefore consumers spend more 
B) when consumers spend more, the price level increases 
C) when consumer income increases, consumers spend more 
D) when the price level decreases, consumers save more, and therefore become wealthier 
A) when the price level decreases, consumer purchasing power goes up, and therefore consumers spend more 
B) when consumers spend more, the price level increases 
C) when consumer income increases, consumers spend more 
D) when the price level decreases, consumers save more, and therefore become wealthier

Question 9

For a given level of inflation, if a stock market crash makes consumers less willing to spend (the wealth effect), then the _____ shifts _____.

Accepted Answer

A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) short-run aggregate supply line; upward 
D) short-run aggregate supply line; downward 
A) aggregate demand curve; right 
B) aggregate demand curve; left 
C) short-run aggregate supply line; upward 
D) short-run aggregate supply line; downward

Question 10

An economy can produce more if it experiences:

Accepted Answer

A) advances in technology 
B) an increase in labour 
C) an increase in capital 
D) all of the above 
E) none of the above 
A) advances in technology 
B) an increase in labour 
C) an increase in capital 
D) all of the above 
E) none of the above

Question 11

The new classical misperceptions theory states that:

Accepted Answer

A) changes in the relative price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve 
B) changes in the overall price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve 
C) changes in the overall price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve 
D) changes in the relative price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve 
A) changes in the relative price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve 
B) changes in the overall price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve 
C) changes in the overall price can temporarily mislead consumers, and lead to an upward-sloping aggregate-supply curve 
D) changes in the relative price can temporarily mislead suppliers, and lead to an upward-sloping aggregate-supply curve

Question 12

Which of the following statements about aggregate supply is correct?

Accepted Answer

A) Shifts in aggregate supply can cause stagflation 
B) Shifts in aggregate supply can cause a fall in output and a rise in prices 
C) Shifts in aggregate supply can cause a recession 
D) All of the above 
A) Shifts in aggregate supply can cause stagflation 
B) Shifts in aggregate supply can cause a fall in output and a rise in prices 
C) Shifts in aggregate supply can cause a recession 
D) All of the above

Question 13

Aggregate demand is negatively related to interest rates because

Accepted Answer

A) higher interest rates encourage consumption 
B) higher interest rates encourage saving and deferring consumption 
C) new houses are usually financed by borrowing 
D) changes in interest rates affect exchange rates 
A) higher interest rates encourage consumption 
B) higher interest rates encourage saving and deferring consumption 
C) new houses are usually financed by borrowing 
D) changes in interest rates affect exchange rates

Question 14

The combination of rising unemployment and rising price level is called stagflation.

Accepted Answer

A) True 
 B)False

Question 15

When production costs rise, in the short run:

Accepted Answer

A) the aggregate-supply curve shifts down to the right 
B) the aggregate-demand curve shifts down to the left 
C) the aggregate-demand curve shifts up to the right 
D) the aggregate-supply curve shifts up to the left 
E) both the aggregate-demand curve and the aggregate-supply curve shift to the left 
A) the aggregate-supply curve shifts down to the right 
B) the aggregate-demand curve shifts down to the left 
C) the aggregate-demand curve shifts up to the right 
D) the aggregate-supply curve shifts up to the left 
E) both the aggregate-demand curve and the aggregate-supply curve shift to the left

Question 16

Starting with AD₁ and AS1 in the graph below, if the world price of oil rises, then in the short run:
Graph 14-3

Accepted Answer

A) output stays the same and prices fall 
B) output decreases and prices fall 
C) output decreases and prices rise 
D) output increases and prices rise 
E) output stays the same and prices rise 
A) output stays the same and prices fall 
B) output decreases and prices fall 
C) output decreases and prices rise 
D) output increases and prices rise 
E) output stays the same and prices rise

Question 17

Which statement is correct?

Accepted Answer

A) A movement along the AD curve results from a price change 
B) The AS curve will shift leftwards if the labour force decreases 
C) If there is excess aggregate demand at the current price level, the price level will rise 
D) The long-run AS curve shows each firm is producing at its capacity and there is full employment 
A) A movement along the AD curve results from a price change 
B) The AS curve will shift leftwards if the labour force decreases 
C) If there is excess aggregate demand at the current price level, the price level will rise 
D) The long-run AS curve shows each firm is producing at its capacity and there is full employment

Question 18

Which of the following is a policy instrument?

Accepted Answer

A) Money supply 
B) Government expenditure 
C) Taxes 
D) All of the above 
A) Money supply 
B) Government expenditure 
C) Taxes 
D) All of the above

Question 19

A short period of falling incomes and rising unemployment is called:

Accepted Answer

A) a business cycle 
B) a boom 
C) a recession 
D) a depression 
A) a business cycle 
B) a boom 
C) a recession 
D) a depression

Question 20

A fall in the price level causes the aggregate supply to _____ in the short run.

Accepted Answer

A) fall 
B) increase 
C) fluctuate 
D) keep constant 
A) fall 
B) increase 
C) fluctuate 
D) keep constant

Exam 33: Aggregate Demand and Aggregate Supply

When firms cut back production:

The long-run aggregate supply is called:

The short-run aggregate curve's shape is affected by the economy's position in regards to full employment.

Keynes's interest-rate effect implies that a lower price level:

Most economists believe that in the short run:

A prolonged period of falling incomes and rising unemployment is called:

When an increase in the economy's capital stock increases productivity:

The Pigou effect implies that:

For a given level of inflation, if a stock market crash makes consumers less willing to spend (the wealth effect), then the _____ shifts _____.

An economy can produce more if it experiences:

The new classical misperceptions theory states that:

Which of the following statements about aggregate supply is correct?

Aggregate demand is negatively related to interest rates because

The combination of rising unemployment and rising price level is called stagflation.

When production costs rise, in the short run:

Starting with AD₁ and AS1 in the graph below, if the world price of oil rises, then in the short run: Graph 14-3

Which statement is correct?

Which of the following is a policy instrument?

A short period of falling incomes and rising unemployment is called:

A fall in the price level causes the aggregate supply to _____ in the short run.

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

Filters

For a given level of inflation, if a stock market crash makes consumers less willing to spend (the wealth effect), then the _ shifts _.

Starting with AD₁ and AS₁ in the graph below, if the world price of oil rises, then in the short run: Graph 14-3