Question 1

A short-run aggregate supply curve (SRAS) assumes:

Accepted Answer

A)  the CPI is fixed. 
B)  each point on the SRAS is potential real GDP. 
C)  fixed or sticky nominal wages. 
D)  nominal wages vary directly with price changes. 
A)  the CPI is fixed. 
B)  each point on the SRAS is potential real GDP. 
C)  fixed or sticky nominal wages. 
D)  nominal wages vary directly with price changes.

Question 2

Exhibit 14-6 Aggregate supply curve
 
In Exhibit 14-6, when the economy moves from a GDP of $1,000 billion to a GDP of $1,100 billion,

Accepted Answer

A)  higher wages will lower the cost of producing goods. 
B)  real GDP and employment both increase, but only under conditions of constant prices. 
C)  real GDP increases and employment decreases, but only under conditions of price level increases. 
D)  real GDP and employment both increase, but only under conditions of price level increases. 
A)  higher wages will lower the cost of producing goods. 
B)  real GDP and employment both increase, but only under conditions of constant prices. 
C)  real GDP increases and employment decreases, but only under conditions of price level increases. 
D)  real GDP and employment both increase, but only under conditions of price level increases.

Question 3

Which of the following would cause a rightward shift in the aggregate supply curve?

Accepted Answer

A)  larger-than-expected wage increases 
B)  lower oil prices 
C)  increased investment spending 
D)  greater government regulation 
A)  larger-than-expected wage increases 
B)  lower oil prices 
C)  increased investment spending 
D)  greater government regulation

Question 4

In the short run, a price increase in the goods and services market measured by the CPI will:

Accepted Answer

A)  increase the purchasing power of money. 
B)  improve producer profits and, thereby, induce suppliers to expand output. 
C)  increase resource prices, lower profits, and lead to a decline in output. 
D)  reduce the natural rate of unemployment. 
A)  increase the purchasing power of money. 
B)  improve producer profits and, thereby, induce suppliers to expand output. 
C)  increase resource prices, lower profits, and lead to a decline in output. 
D)  reduce the natural rate of unemployment.

Question 5

Which of the following will increase aggregate demand in the United States?

Accepted Answer

A)  a higher price level 
B)  an increase in the real interest rate 
C)  an increase in wealth due to a substantial appreciation in the value of stocks 
D)  a decrease in real income in Japan and Western Europe 
A)  a higher price level 
B)  an increase in the real interest rate 
C)  an increase in wealth due to a substantial appreciation in the value of stocks 
D)  a decrease in real income in Japan and Western Europe

Question 6

Exhibit 14-4 Aggregate supply and demand curves
 
In Exhibit 14-4, point E2 represents:

Accepted Answer

A)  real GDP above full-employment GDP. 
B)  real GDP that equals full-employment GDP. 
C)  a depression. 
D)  real GDP below full-employment GDP. 
A)  real GDP above full-employment GDP. 
B)  real GDP that equals full-employment GDP. 
C)  a depression. 
D)  real GDP below full-employment GDP.

Question 7

In the long run, a decrease in aggregate demand causes the price level to _______ and the long-run aggregate supply curve to _____________.

Accepted Answer

A)  decrease; decrease 
B)  increase; increase 
C)  decrease; remain unchanged 
D)  increase; remain unchanged 
A)  decrease; decrease 
B)  increase; increase 
C)  decrease; remain unchanged 
D)  increase; remain unchanged

Question 8

The real balances effect predicts that higher prices:

Accepted Answer

A)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
B)  make people worse off by reducing the value of their wealth, leading them to save less and spend more. 
C)  make people better off by increasing the value of their wealth, leading them to save less and spend more. 
D)  increase borrowing, leading to higher interest rates and less investment. 
A)  make people worse off by reducing the value of their wealth, leading them to save more and spend less. 
B)  make people worse off by reducing the value of their wealth, leading them to save less and spend more. 
C)  make people better off by increasing the value of their wealth, leading them to save less and spend more. 
D)  increase borrowing, leading to higher interest rates and less investment.

Question 9

Which one of the following factors will most likely cause an increase in aggregate demand?

Accepted Answer

A)  An increase in net exports. 
B)  An increase in the real interest rate. 
C)  A decrease in net exports due to falling incomes abroad. 
D)  A technological development that decreases the cost of producing computer chips. 
A)  An increase in net exports. 
B)  An increase in the real interest rate. 
C)  A decrease in net exports due to falling incomes abroad. 
D)  A technological development that decreases the cost of producing computer chips.

Question 10

Along the intermediate range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level. 
A)  both the price level and real GDP. 
B)  only real GDP. 
C)  only the price level. 
D)  real GDP and reduce the price level.

Question 11

Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?

Accepted Answer

A)  The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run. 
B)  The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C)  The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D)  The higher prices will improve technology and, thereby, stimulate additional output. 
A)  The higher prices will temporarily improve profit margins because the cost of wages and salaries are fixed in the short run. 
B)  The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C)  The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D)  The higher prices will improve technology and, thereby, stimulate additional output.

Question 12

Exhibit 14A-2 Macro AD-AS Model
 
I n Exhibit 14A- 2, 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 increase  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 increase  unemployment. 
D)  that the economy is at full employment.

Question 13

When OPEC caused the price of oil to rise in the early 1970s, the:

Accepted Answer

A)  aggregate supply curve shifted to the right. 
B)  aggregate supply curve shifted to the left. 
C)  aggregate demand curve shifted to the right. 
D)  aggregate demand curve shifted to the left. 
A)  aggregate supply curve shifted to the right. 
B)  aggregate supply curve shifted to the left. 
C)  aggregate demand curve shifted to the right. 
D)  aggregate demand curve shifted to the left.

Question 14

A rightward shift in potential real GDP is not likely to result from which of the following?

Accepted Answer

A)  a discovery of new oil reserves 
B)  workers' acquisition of new skills 
C)  retirement of a large and aging segment of the workforce 
D)  an improvement in technology 
A)  a discovery of new oil reserves 
B)  workers' acquisition of new skills 
C)  retirement of a large and aging segment of the workforce 
D)  an improvement in technology

Question 15

According to the interest rate effect, as the price level rises,:

Accepted Answer

A)  people feel poorer and buy less. 
B)  United States products become more expensive and foreigners buy less U.S. goods. 
C)  interest rates fall, and people buy less. 
D)  interest rates rise, and people buy less. 
A)  people feel poorer and buy less. 
B)  United States products become more expensive and foreigners buy less U.S. goods. 
C)  interest rates fall, and people buy less. 
D)  interest rates rise, and people buy less.

Question 16

Which of the following will not shift the aggregate demand curve to the left?

Accepted Answer

A)  Consumers become more optimistic about the future. 
B)  Government spending decreases. 
C)  Business optimism decreases. 
D)  Consumers become pessimistic about the future. 
A)  Consumers become more optimistic about the future. 
B)  Government spending decreases. 
C)  Business optimism decreases. 
D)  Consumers become pessimistic about the future.

Question 17

Exhibit 14A-2 Macro AD-AS Model
 
In Exhibit 14A-2, the long-run aggregate supply curve represents:

Accepted Answer

A)  potential real GDP output for this economy. 
B)   that the economy is experiencing zero inflation. 
C)  that the economy is experiencing technological change . 
D)  the level of real GDP where the unemployment rate is zero. 
A)  potential real GDP output for this economy. 
B)   that the economy is experiencing zero inflation. 
C)  that the economy is experiencing technological change . 
D)  the level of real GDP where the unemployment rate is zero.

Question 18

Exhibit 14A-1 Aggregate demand and supply model
 
Given the shift of the aggregate demand curve from AD1 to AD2   in Exhibit 10A-1, the real GDP and price level (CPI) in long-run equilibrium will be:

Accepted Answer

A)  $8 billion and 150. 
B)  $12 billion and 200. 
C)  $8 billion and 250. 
D)  $8 billion and 200. 
A)  $8 billion and 150. 
B)  $12 billion and 200. 
C)  $8 billion and 250. 
D)  $8 billion and 200.

Question 19

Given aggregate demand, a decrease in aggregate supply creates:

Accepted Answer

A)  a higher price level and a higher GDP level. 
B)  a lower price level and a higher GDP level. 
C)  cost-push inflation. 
D)  demand-pull inflation. 
A)  a higher price level and a higher GDP level. 
B)  a lower price level and a higher GDP level. 
C)  cost-push inflation. 
D)  demand-pull inflation.

Question 20

Beginning from a position of long-run equilibrium at the full-employment level of real GDP, the economy's short-run response to an increase in the aggregate demand curve would be:

Accepted Answer

A)  a movement upward along the short-run aggregate supply curve. 
B)  a movement upward along the long-run aggregate supply curve. 
C)  a downward shift in the short-run aggregate supply curve. 
D)  a shift in both the aggregate demand curve and the short-run aggregate supply c urve with a movement along the long-run aggregate supply curve. 
A)  a movement upward along the short-run aggregate supply curve. 
B)  a movement upward along the long-run aggregate supply curve. 
C)  a downward shift in the short-run aggregate supply curve. 
D)  a shift in both the aggregate demand curve and the short-run aggregate supply c urve with a movement along the long-run aggregate supply curve.

Exam 14: Aggregate Demand and Supply

A short-run aggregate supply curve (SRAS) assumes:

Exhibit 14-6 Aggregate supply curve In Exhibit 14-6, when the economy moves from a GDP of $1,000 billion to a GDP of $1,100 billion,

Which of the following would cause a rightward shift in the aggregate supply curve?

In the short run, a price increase in the goods and services market measured by the CPI will:

Which of the following will increase aggregate demand in the United States?

Exhibit 14-4 Aggregate supply and demand curves In Exhibit 14-4, point E2 represents:

In the long run, a decrease in aggregate demand causes the price level to _______ and the long-run aggregate supply curve to _____________.

The real balances effect predicts that higher prices:

Which one of the following factors will most likely cause an increase in aggregate demand?

Along the intermediate range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

Which of the following explains why higher prices in the goods and services market measured by the CPI leads to an upward-sloping aggregate supply curve?

Exhibit 14A-2 Macro AD-AS Model I n Exhibit 14A- 2, the intersection of AD with SRAS indicates:

When OPEC caused the price of oil to rise in the early 1970s, the:

A rightward shift in potential real GDP is not likely to result from which of the following?

According to the interest rate effect, as the price level rises,:

Which of the following will not shift the aggregate demand curve to the left?

Exhibit 14A-2 Macro AD-AS Model In Exhibit 14A-2, the long-run aggregate supply curve represents:

Exhibit 14A-1 Aggregate demand and supply model Given the shift of the aggregate demand curve from AD1 to AD2 in Exhibit 10A-1, the real GDP and price level (CPI) in long-run equilibrium will be:

Given aggregate demand, a decrease in aggregate supply creates:

Beginning from a position of long-run equilibrium at the full-employment level of real GDP, the economy's short-run response to an increase in the aggregate demand curve would be:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Fiscal Policy

The Public Sector

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Filters

Exhibit 14-4 Aggregate supply and demand curves In Exhibit 14-4, point E₂ represents:

In the long run, a decrease in aggregate demand causes the price level to _ and the long-run aggregate supply curve to _______.

Exhibit 14A-1 Aggregate demand and supply model Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 10A-1, the real GDP and price level (CPI) in long-run equilibrium will be: