Question 1

According to the new classical misperceptions theory, the upward slope of the short-run aggregate-supply curve results from:

Accepted Answer

A) misperceptions about the quantity of goods and services demanded 
B) misperceptions about the ability of production 
C) misperceptions about relative prices 
D) none of the above 
A) misperceptions about the quantity of goods and services demanded 
B) misperceptions about the ability of production 
C) misperceptions about relative prices 
D) none of the above

Question 2

The new Keynesian sticky-price theory states that in the short run:

Accepted Answer

A) the aggregate-supply curve is downward-sloping 
B) the aggregate-supply curve is upward-sloping 
C) the aggregate-supply curve is horizontal 
D) the aggregate-supply curve is vertical 
A) the aggregate-supply curve is downward-sloping 
B) the aggregate-supply curve is upward-sloping 
C) the aggregate-supply curve is horizontal 
D) the aggregate-supply curve is vertical

Question 3

We can use the aggregate demand and supply model to think about the long run as well as the short run.Using this framework, show the effects of (1) long-run growth in the money supply, and (2) long-run growth in GDP.Show that if the economy is growing, then the price level might fall over time even if the money supply is growing.

Accepted Answer

Growth in the money supply in the long r

Question 4

The long run aggregate supply curve is the summation of the short-run aggregate supply curves.

Accepted Answer

A) True 
 B)False

Question 5

If resources become more productive:

Accepted Answer

A) neither the short-run aggregate curve nor the long-run supply curve shifts 
B) the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts 
C) the aggregate-demand curve shifts 
D) both the short-run and the long-run aggregate-supply curves shift 
A) neither the short-run aggregate curve nor the long-run supply curve shifts 
B) the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts 
C) the aggregate-demand curve shifts 
D) both the short-run and the long-run aggregate-supply curves shift

Question 6

An increase in inflation shifts the AD curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

The behaviour by the Reserve Bank is a key factor underlying the link between ______ and _____, and is summarised by the aggregate demand curve.

Accepted Answer

A) inflation; input 
B) inflation; output 
C) inflation; income 
D) inflation; taxes 
A) inflation; input 
B) inflation; output 
C) inflation; income 
D) inflation; taxes

Question 8

Starting with AD₁ and AS1 in the graph below, if resources become more productive:
Graph 14-2

Accepted Answer

A) equilibrium in the economy moves from point c to point b 
B) equilibrium in the economy moves from point b to point c 
C) equilibrium in the economy moves from point c to point d 
D) equilibrium in the economy moves from point d to point c 
E) equilibrium in the economy moves from point c to point a 
A) equilibrium in the economy moves from point c to point b 
B) equilibrium in the economy moves from point b to point c 
C) equilibrium in the economy moves from point c to point d 
D) equilibrium in the economy moves from point d to point c 
E) equilibrium in the economy moves from point c to point a

Question 9

Another reason for the downward slope of the aggregate demand curve is the effect of inflation on the:

Accepted Answer

A) real value of net assets 
B) real value of properties held by investors 
C) nominal value of net assets 
D) real value of equilibrium output 
A) real value of net assets 
B) real value of properties held by investors 
C) nominal value of net assets 
D) real value of equilibrium output

Question 10

The aggregate supply curve shows the relationship between:

Accepted Answer

A) the general level of prices and real domestic output purchased 
B) real domestic output produced and the general level of prices 
C) the price level at which the producers are willing to provide output 
D) real domestic output purchased and real domestic output produced 
A) the general level of prices and real domestic output purchased 
B) real domestic output produced and the general level of prices 
C) the price level at which the producers are willing to provide output 
D) real domestic output purchased and real domestic output produced

Question 11

The classical dichotomy refers to the separation of:

Accepted Answer

A) monetary and fiscal variables 
B) predictable and unpredictable variables 
C) endogenous and exogenous variables 
D) real and nominal variables 
A) monetary and fiscal variables 
B) predictable and unpredictable variables 
C) endogenous and exogenous variables 
D) real and nominal variables

Question 12

In the long-run persistent increases in aggregate demand will:

Accepted Answer

A) result in stagflation 
B) eliminate structural unemployment 
C) result in inflation with no changes in real GDP 
D) result in shifts of the long-run aggregate supply curve to the right 
A) result in stagflation 
B) eliminate structural unemployment 
C) result in inflation with no changes in real GDP 
D) result in shifts of the long-run aggregate supply curve to the right

Question 13

Economic growth is:

Accepted Answer

A) bad for the economy as it reduces the standard of living 
B) good for society to the extent that it allows everyone to enjoy a higher standard of living 
C) bad for society as it allows producers to make more profit 
D) bad for society because it creates more inequities 
E) none of the above 
A) bad for the economy as it reduces the standard of living 
B) good for society to the extent that it allows everyone to enjoy a higher standard of living 
C) bad for society as it allows producers to make more profit 
D) bad for society because it creates more inequities 
E) none of the above

Question 14

Investment spending averages about two-thirds of GDP, yet declines in investment account for only about one-seventh of the declines in GDP during recessions.

Accepted Answer

A) True 
 B)False

Question 15

The aggregate-supply curve is vertical in the long run because:

Accepted Answer

A) of the classical dichotomy and money neutrality 
B) aggregate demand is downward-sloping 
C) overall output goes up when prices go up 
D) overall output goes down when prices go up 
A) of the classical dichotomy and money neutrality 
B) aggregate demand is downward-sloping 
C) overall output goes up when prices go up 
D) overall output goes down when prices go up

Question 16

A decrease in the price of imported raw materials owing to appreciation of the $A would shift the AS-curve to the right.

Accepted Answer

A) True 
 B)False

Question 17

The wealth effect implies that:

Accepted Answer

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

Question 18

The new classical misperceptions theory, based on the work of Milton Friedman and Robert Lucas, suggests that a lower price level causes misperceptions about relative prices, which induces suppliers to increase the quantity of goods and services supplied.

Accepted Answer

A) True 
 B)False

Question 19

Using the real GDP measure, Australia did not have a recession.However other measures state otherwise.Identify and explain why these may be used as valid evidence of a downturn, even though they are NOT used to measure the business cycle.

Accepted Answer

While we have used a fairly standard def

Question 20

A decrease in aggregate expenditure shifts the aggregate demand curve to the:

Accepted Answer

A) right by the level of decrease in aggregate expenditure 
B) left by the level of decrease in aggregate expenditure times the multiplier 
C) left by the level of decrease in aggregate expenditure 
D) right by the level of decrease in aggregate expenditure times the multiplier 
A) right by the level of decrease in aggregate expenditure 
B) left by the level of decrease in aggregate expenditure times the multiplier 
C) left by the level of decrease in aggregate expenditure 
D) right by the level of decrease in aggregate expenditure times the multiplier

Exam 33: Aggregate Demand and Aggregate Supply

According to the new classical misperceptions theory, the upward slope of the short-run aggregate-supply curve results from:

The new Keynesian sticky-price theory states that in the short run:

The long run aggregate supply curve is the summation of the short-run aggregate supply curves.

If resources become more productive:

An increase in inflation shifts the AD curve to the right.

The behaviour by the Reserve Bank is a key factor underlying the link between ______ and _____, and is summarised by the aggregate demand curve.

Starting with AD₁ and AS1 in the graph below, if resources become more productive: Graph 14-2

Another reason for the downward slope of the aggregate demand curve is the effect of inflation on the:

The aggregate supply curve shows the relationship between:

The classical dichotomy refers to the separation of:

In the long-run persistent increases in aggregate demand will:

Economic growth is:

Investment spending averages about two-thirds of GDP, yet declines in investment account for only about one-seventh of the declines in GDP during recessions.

The aggregate-supply curve is vertical in the long run because:

A decrease in the price of imported raw materials owing to appreciation of the $A would shift the AS-curve to the right.

The wealth effect implies that:

The new classical misperceptions theory, based on the work of Milton Friedman and Robert Lucas, suggests that a lower price level causes misperceptions about relative prices, which induces suppliers to increase the quantity of goods and services supplied.

Using the real GDP measure, Australia did not have a recession.However other measures state otherwise.Identify and explain why these may be used as valid evidence of a downturn, even though they are NOT used to measure the business cycle.

A decrease in aggregate expenditure shifts the aggregate demand curve to the:

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

The behaviour by the Reserve Bank is a key factor underlying the link between __ and _, and is summarised by the aggregate demand curve.

Starting with AD₁ and AS₁ in the graph below, if resources become more productive: Graph 14-2