Question 1

Economic growth is measured by the percentage change in:

Accepted Answer

A) potential nominal GDP. 
B) structural unemployment. 
C) the rule of 72. 
D) potential real GDP (LRAS). 
A) potential nominal GDP. 
B) structural unemployment. 
C) the rule of 72. 
D) potential real GDP (LRAS).

Question 2

Beginning in Exhibit 1 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from:

Accepted Answer

A) E3 to E1 to E2. 
B) E1 to E3 to E2. 
C) E2 to E1 to E2. 
D) E1 to E2 to E3. 
A) E3 to E1 to E2. 
B) E1 to E3 to E2. 
C) E2 to E1 to E2. 
D) E1 to E2 to E3.

Question 3

Beginning in Exhibit 5 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2.  The economy's path to a new long-run equilibrium is represented by a movement from:

Accepted Answer

A) E1 to E2 to E3. 
B) E3 to E2 to E2. 
C) E1 to E3 to E2. 
D) E2 to E1 to E2. 
A) E1 to E2 to E3. 
B) E3 to E2 to E2. 
C) E1 to E3 to E2. 
D) E2 to E1 to E2.

Question 4

Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level. Assuming no further change in aggregate demand and self-correction, the movement to a new long-run equilibrium includes a decrease in which of the following?

Accepted Answer

A) The unemployment rate. 
B) The price level (CPI). 
C) The level of nominal wages and salaries. 
D) All of the above. 
A) The unemployment rate. 
B) The price level (CPI). 
C) The level of nominal wages and salaries. 
D) All of the above.

Question 5

Which of the following causes a leftward shift in the short-run aggregate supply curve?

Accepted Answer

A) An increase of goods prices while nominal incomes are unchanged. 
B) An increase in nominal incomes. 
C) An increase of full-employment real GDP. 
D) An increase of personal consumption expenditures while the price level is unchanged. 
E) An increase of personal consumption expenditures while full-employment real GDP is unchanged. 
A) An increase of goods prices while nominal incomes are unchanged. 
B) An increase in nominal incomes. 
C) An increase of full-employment real GDP. 
D) An increase of personal consumption expenditures while the price level is unchanged. 
E) An increase of personal consumption expenditures while full-employment real GDP is unchanged.

Question 6

If nominal wages and salaries are fixed as firms change product prices, the short-run aggregate supply curve is:

Accepted Answer

A) vertical. 
B) horizontal. 
C) negatively sloped. 
D) positively sloped. 
A) vertical. 
B) horizontal. 
C) negatively sloped. 
D) positively sloped.

Question 7

In Exhibit 4, the self-correction argument is that in the long run competition:

Accepted Answer

A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployed workers causes a rightward shift in SRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS. 
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployed workers causes a rightward shift in SRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Question 8

In an economy where nominal incomes adjust equally to changes in the price level, we would expect the long-run aggregate supply curve to be:

Accepted Answer

A) vertical. 
B) horizontal. 
C) unit elastic. 
D) negatively sloped. 
E) positively sloped. 
A) vertical. 
B) horizontal. 
C) unit elastic. 
D) negatively sloped. 
E) positively sloped.

Question 9

Beginning from a point of short-run equilibrium at point E2 in Exhibit 6, the economy's movement to a new position of long-run equilibrium from that point would best be described as:

Accepted Answer

A) a movement along the AD2 curve caused by a shift in the SRAS1 curve to SRAS2. 
B) a movement along the SRAS2 curve with a shift in the AD2 curve. 
C) a shift in the LRAS curve to an intersection at E3. 
D) no shift of any kind. 
A) a movement along the AD2 curve caused by a shift in the SRAS1 curve to SRAS2. 
B) a movement along the SRAS2 curve with a shift in the AD2 curve. 
C) a shift in the LRAS curve to an intersection at E3. 
D) no shift of any kind.

Question 10

In Exhibit 2, the short-run equilibrium depicts an economy:

Accepted Answer

A) with an inflationary gap. 
B) with a recessionary gap. 
C) producing at full employment. 
D) None of the above answers are correct. 
A) with an inflationary gap. 
B) with a recessionary gap. 
C) producing at full employment. 
D) None of the above answers are correct.

Question 11

As shown in Exhibit 6, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD1 to AD2, is:

Accepted Answer

A) E1. 
B) E2. 
C) E3. 
D) unable to be determined. 
A) E1. 
B) E2. 
C) E3. 
D) unable to be determined.

Question 12

One reason for the short-run aggregate supply curve (SRAS)is:

Accepted Answer

A) a fixed CPI market basket. 
B) perfect knowledge of workers. 
C) fixed-wage contracts. 
D) the upward-sloping production function. 
A) a fixed CPI market basket. 
B) perfect knowledge of workers. 
C) fixed-wage contracts. 
D) the upward-sloping production function.

Question 13

If an economy is operating at short-run equilibrium below the level of real GDP, the self-correction model result is that:

Accepted Answer

A) unemployment increases. 
B) unemployment falls. 
C) cyclical unemployment increases. 
D) frictional and structural unemployment increase. 
A) unemployment increases. 
B) unemployment falls. 
C) cyclical unemployment increases. 
D) frictional and structural unemployment increase.

Question 14

Exhibit 6 Aggregate demand and supply model   As shown in Exhibit 6, and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP is:

Accepted Answer

A) $10 billion. 
B) $4 billion. 
C) $100 billion. 
D) unable to be determined. 
A) $10 billion. 
B) $4 billion. 
C) $100 billion. 
D) unable to be determined.

Question 15

In Exhibit 3, the self-correction argument is that in the long run competition:

Accepted Answer

A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployment workers causes a rightward shift in LRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS. 
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployment workers causes a rightward shift in LRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Question 16

Along the short-run aggregate supply curve (SRAS), an increase (rightward shift)in the aggregate demand curve will increase:

Accepted Answer

A) both the price level and real GDP. 
B) real GDP without raising the price level. 
C) the price level without affecting real GDP. 
D) the price level but reduce real GDP. 
A) both the price level and real GDP. 
B) real GDP without raising the price level. 
C) the price level without affecting real GDP. 
D) the price level but reduce real GDP.

Question 17

As shown in Exhibit 1, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD1 to AD2 , is:

Accepted Answer

A) E1. 
B) E2. 
C) E3. 
D) unable to be determined. 
A) E1. 
B) E2. 
C) E3. 
D) unable to be determined.

Question 18

Economic growth is represented by a:

Accepted Answer

A) rightward shift of the rule of 72 curve. 
B) movement along a production possibilities curve. 
C) rightward shift in potential real GDP (LRAS). 
D) leftward shift of the long-run aggregate supply curve (LRAS). 
A) rightward shift of the rule of 72 curve. 
B) movement along a production possibilities curve. 
C) rightward shift in potential real GDP (LRAS). 
D) leftward shift of the long-run aggregate supply curve (LRAS).

Question 19

In Exhibit 3, the intersection of AD with SRAS indicates:

Accepted Answer

A) a short-run equilibrium. 
B) a long-run equilibrium. 
C) that the economy needs policies to reduce unemployment. 
D) that the economy is at full employment. 
A) a short-run equilibrium. 
B) a long-run equilibrium. 
C) that the economy needs policies to reduce unemployment. 
D) that the economy is at full employment.

Question 20

The long-run aggregate supply curve (LRAS)corresponds to full-employment real GDP with zero frictional and structural unemployment.

Accepted Answer

A) True 
 B)False

Exam 23: the Self-Correcting Aggregate Demand and Supply Model

Economic growth is measured by the percentage change in:

Beginning in Exhibit 1 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from:

Beginning in Exhibit 5 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2. The economy's path to a new long-run equilibrium is represented by a movement from:

Suppose that the economy is in a position of short-run equilibrium at a point where real GDP is below the full-employment level. Assuming no further change in aggregate demand and self-correction, the movement to a new long-run equilibrium includes a decrease in which of the following?

Which of the following causes a leftward shift in the short-run aggregate supply curve?

If nominal wages and salaries are fixed as firms change product prices, the short-run aggregate supply curve is:

In Exhibit 4, the self-correction argument is that in the long run competition:

In an economy where nominal incomes adjust equally to changes in the price level, we would expect the long-run aggregate supply curve to be:

Beginning from a point of short-run equilibrium at point E2 in Exhibit 6, the economy's movement to a new position of long-run equilibrium from that point would best be described as:

In Exhibit 2, the short-run equilibrium depicts an economy:

As shown in Exhibit 6, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD1 to AD2, is:

One reason for the short-run aggregate supply curve (SRAS)is:

If an economy is operating at short-run equilibrium below the level of real GDP, the self-correction model result is that:

Exhibit 6 Aggregate demand and supply model As shown in Exhibit 6, and assuming the aggregate demand curve shifts from AD1 to AD2, the full-employment level of real GDP is:

In Exhibit 3, the self-correction argument is that in the long run competition:

Along the short-run aggregate supply curve (SRAS), an increase (rightward shift)in the aggregate demand curve will increase:

As shown in Exhibit 1, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD1 to AD2 , is:

Economic growth is represented by a:

In Exhibit 3, the intersection of AD with SRAS indicates:

The long-run aggregate supply curve (LRAS)corresponds to full-employment real GDP with zero frictional and structural unemployment.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters

Beginning in Exhibit 1 from long-run equilibrium at point E₁, the aggregate demand curve shifts to AD₂. The economy's path to a new long-run equilibrium is represented by a movement from:

Beginning in Exhibit 5 from long-run equilibrium at point E₁, the aggregate demand curve shifts to AD₂. The economy's path to a new long-run equilibrium is represented by a movement from:

Beginning from a point of short-run equilibrium at point E₂ in Exhibit 6, the economy's movement to a new position of long-run equilibrium from that point would best be described as:

As shown in Exhibit 6, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD₁ to AD₂, is:

Exhibit 6 Aggregate demand and supply model As shown in Exhibit 6, and assuming the aggregate demand curve shifts from AD₁ to AD₂, the full-employment level of real GDP is:

As shown in Exhibit 1, the economy's point of short-run equilibrium, given by the shift of the aggregate demand curve from AD₁ to AD₂, is: