Question 1

Which of the following is true of the disposable income of the households?

Accepted Answer

A)  An increase in the average price level lowers the disposable income of the households. 
B)  Disposable income refers to the purchasing power of nominal income. 
C)  Increase in direct taxes will lower disposable income. 
D)  Decrease in government transfers will increase disposable income. 
E)  Disposable income refers to the net private transfers of the household sector. 
A)  An increase in the average price level lowers the disposable income of the households. 
B)  Disposable income refers to the purchasing power of nominal income. 
C)  Increase in direct taxes will lower disposable income. 
D)  Decrease in government transfers will increase disposable income. 
E)  Disposable income refers to the net private transfers of the household sector.

Question 2

When the foreign price level falls, domestic goods become more expensive relative to foreign goods, causing domestic net exports and aggregate demand to fall.

Accepted Answer

A) True 
 B)False

Question 3

Each of the panels given below represents the short-run equilibrium in the U.S. economy. The Aggregate Demand and Aggregate Supply curves in each panel responds to various economic changes.
Figure 8.1
  
-Refer to Figure 8.1. Which of the graphs in the figure best describes the impact of an effective oil embargo that raises the price of gasoline?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
E)  Panel E 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
E)  Panel E

Question 4

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3
  
-Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Accepted Answer

A)  above $300 billion. 
B)  between $300 billion and $400 billion. 
C)  above $400 billion. 
D)  below $300 billion. 
E)  above $500 billion. 
A)  above $300 billion. 
B)  between $300 billion and $400 billion. 
C)  above $400 billion. 
D)  below $300 billion. 
E)  above $500 billion.

Question 5

Which of the following could lead to a decline in aggregate supply?

Accepted Answer

A)  The discovery of new mineral deposits in Arizona 
B)  Higher real wage rates in the U.S. 
C)  Lower personal income in France 
D)  Cutbacks in government borrowing 
E)  Rapid depreciation of the Swiss franc 
A)  The discovery of new mineral deposits in Arizona 
B)  Higher real wage rates in the U.S. 
C)  Lower personal income in France 
D)  Cutbacks in government borrowing 
E)  Rapid depreciation of the Swiss franc

Question 6

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

A rightward shift in the aggregate supply curve with no change in the aggregate demand curve signals an economic expansion.

Accepted Answer

A) True 
 B)False

Question 8

The wealth effect, the interest rate effect, and the international trade effect account for the:

Accepted Answer

A)  positive slope of the short-run aggregate supply curve. 
B)  the shape of the long-run aggregate supply curve. 
C)  positive slope of the aggregate demand curve. 
D)  negative slope of the aggregate demand curve. 
E)  negative slope of the short-run aggregate supply curve. 
A)  positive slope of the short-run aggregate supply curve. 
B)  the shape of the long-run aggregate supply curve. 
C)  positive slope of the aggregate demand curve. 
D)  negative slope of the aggregate demand curve. 
E)  negative slope of the short-run aggregate supply curve.

Question 9

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3
  
-Refer to Figure 8.3. Movement from point B to point D could be initiated by:

Accepted Answer

A)  a stock market crash that undermines consumer confidence. 
B)  a tax code changes that improve investor expectations. 
C)  a national emergency that increases government spending. 
D)  a higher net exports because of economic expansion in European countries. 
E)  a technological advancement. 
A)  a stock market crash that undermines consumer confidence. 
B)  a tax code changes that improve investor expectations. 
C)  a national emergency that increases government spending. 
D)  a higher net exports because of economic expansion in European countries. 
E)  a technological advancement.

Question 10

Which of the following is not held constant in the short run when determining the aggregate supply curve?

Accepted Answer

A)  Interest rates 
B)  Rent 
C)  Wages 
D)  Profit 
E)  Price level 
A)  Interest rates 
B)  Rent 
C)  Wages 
D)  Profit 
E)  Price level

Question 11

The steeper slope of the aggregate supply curve in the long run indicates that an increase in aggregate demand will cause an increase in the price level and an even greater increase in output in the long run.

Accepted Answer

A) True 
 B)False

Question 12

Lower interest rates on business loans usually result in a(n):

Accepted Answer

A)  decrease in aggregate demand. 
B)  decrease in aggregate supply. 
C)  decrease in investment spending. 
D)  increase in government spending. 
E)  increase in aggregate expenditures. 
A)  decrease in aggregate demand. 
B)  decrease in aggregate supply. 
C)  decrease in investment spending. 
D)  increase in government spending. 
E)  increase in aggregate expenditures.

Question 13

Which of the following is not a component of the aggregate expenditures of a country?

Accepted Answer

A)  Investment 
B)  Government spending 
C)  Net exports 
D)  Consumption 
E)  Transfer payments 
A)  Investment 
B)  Government spending 
C)  Net exports 
D)  Consumption 
E)  Transfer payments

Question 14

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model.
Figure 8.2
  
-Refer to Figure 8.2. The combination of rising prices and falling output is known as stagflation. This phenomenon is represented by which of the following shifts?

Accepted Answer

A)  $L R A S_{2} \text { to } L R A S_{1}$ 
B) $A D _ { 1 } \text { to } A D _ { 2 }$ 
C) $A D _ { 2 } \text { to } A D _ { 1 }$ 
D)  $L R A S _ { 1 } \text { to } L R A S _ { 2 }$ 
E)  The combination oftoand to 
A)  $L R A S_{2} \text { to } L R A S_{1}$ 
B) $A D _ { 1 } \text { to } A D _ { 2 }$ 
C) $A D _ { 2 } \text { to } A D _ { 1 }$ 
D)  $L R A S _ { 1 } \text { to } L R A S _ { 2 }$ 
E)  The combination oftoand to

Question 15

What happens to aggregate supply when production costs adjust completely to price increases?

Accepted Answer

A)  Both equilibrium output and prices increase 
B)  Only prices rise; equilibrium output remains fixed 
C)  Only equilibrium output rises; equilibrium prices remain fixed 
D)  Equilibrium output falls while prices rise 
E)  Both equilibrium output and prices remain fixed 
A)  Both equilibrium output and prices increase 
B)  Only prices rise; equilibrium output remains fixed 
C)  Only equilibrium output rises; equilibrium prices remain fixed 
D)  Equilibrium output falls while prices rise 
E)  Both equilibrium output and prices remain fixed

Question 16

Which of the following is an impact of an increase in the general price level?

Accepted Answer

A)  An increase in aggregate demand for goods and services 
B)  A decrease in aggregate supply of goods and services 
C)  An increase in the price of the financial assets 
D)  A decrease in supply of bonds and other assets 
E)  An increase in interest rates 
A)  An increase in aggregate demand for goods and services 
B)  A decrease in aggregate supply of goods and services 
C)  An increase in the price of the financial assets 
D)  A decrease in supply of bonds and other assets 
E)  An increase in interest rates

Question 17

A change in foreign demand does not affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 18

In the Keynesian case, an increase in aggregate demand results in an increase in both the price level and equilibrium real GDP.

Accepted Answer

A) True 
 B)False

Question 19

In the long-run, the aggregate supply curve normally is downward-sloping.

Accepted Answer

A) True 
 B)False

Question 20

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Accepted Answer

A) True 
 B)False

Which of the following is true of the disposable income of the households?

When the foreign price level falls, domestic goods become more expensive relative to foreign goods, causing domestic net exports and aggregate demand to fall.

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Which of the following could lead to a decline in aggregate supply?

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

A rightward shift in the aggregate supply curve with no change in the aggregate demand curve signals an economic expansion.

The wealth effect, the interest rate effect, and the international trade effect account for the:

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -Refer to Figure 8.3. Movement from point B to point D could be initiated by:

Which of the following is not held constant in the short run when determining the aggregate supply curve?

The steeper slope of the aggregate supply curve in the long run indicates that an increase in aggregate demand will cause an increase in the price level and an even greater increase in output in the long run.

Lower interest rates on business loans usually result in a(n):

Which of the following is not a component of the aggregate expenditures of a country?

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2 -Refer to Figure 8.2. The combination of rising prices and falling output is known as stagflation. This phenomenon is represented by which of the following shifts?

What happens to aggregate supply when production costs adjust completely to price increases?

Which of the following is an impact of an increase in the general price level?

A change in foreign demand does not affect aggregate demand.

In the Keynesian case, an increase in aggregate demand results in an increase in both the price level and equilibrium real GDP.

In the long-run, the aggregate supply curve normally is downward-sloping.

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

Which of the following is true of the disposable income of the households?

When the foreign price level falls, domestic goods become more expensive relative to foreign goods, causing domestic net exports and aggregate demand to fall.

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:

Which of the following could lead to a decline in aggregate supply?

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

A rightward shift in the aggregate supply curve with no change in the aggregate demand curve signals an economic expansion.

The wealth effect, the interest rate effect, and the international trade effect account for the:

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -Refer to Figure 8.3. Movement from point B to point D could be initiated by:

Which of the following is not held constant in the short run when determining the aggregate supply curve?

The steeper slope of the aggregate supply curve in the long run indicates that an increase in aggregate demand will cause an increase in the price level and an even greater increase in output in the long run.

Lower interest rates on business loans usually result in a(n):

Which of the following is not a component of the aggregate expenditures of a country?

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2 -Refer to Figure 8.2. The combination of rising prices and falling output is known as stagflation. This phenomenon is represented by which of the following shifts?

What happens to aggregate supply when production costs adjust completely to price increases?

Which of the following is an impact of an increase in the general price level?

A change in foreign demand does not affect aggregate demand.

In the Keynesian case, an increase in aggregate demand results in an increase in both the price level and equilibrium real GDP.

In the long-run, the aggregate supply curve normally is downward-sloping.

If people expect the economy to do well in the future, they will increase their consumption today at every price level.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters