Question 1

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Accepted Answer

A) Prices and output are affected in both the short and long run. 
B) Prices and output are affected only in the short run. 
C) Prices are affected in the long and short run, but output only in the short run. 
D) Prices are affected in the long and short run, but output only in the long run. 
A) Prices and output are affected in both the short and long run. 
B) Prices and output are affected only in the short run. 
C) Prices are affected in the long and short run, but output only in the short run. 
D) Prices are affected in the long and short run, but output only in the long run.

Question 2

Which of the following situations would induce a shift of the aggregate demand to the right?

Accepted Answer

A) The price level and government expenditures decreased. 
B) The price level decreased, and the government instituted an investment tax credit. 
C) Government expenditures and the money supply increased. 
D) The bank rate increased, and the dollar appreciated. 
A) The price level and government expenditures decreased. 
B) The price level decreased, and the government instituted an investment tax credit. 
C) Government expenditures and the money supply increased. 
D) The bank rate increased, and the dollar appreciated.

Question 3

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Accepted Answer

Variables that fall along with real GDP

Question 4

Figure 14-1
  
-Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

Accepted Answer

A) from C to A 
B) from C to B 
C) from C to A to C again 
D) from C to D 
A) from C to A 
B) from C to B 
C) from C to A to C again 
D) from C to D

Question 5

What does a rise in the economy's overall level of prices tend to do?

Accepted Answer

A) It tends to raise both the quantity demanded and supplied of goods and services. 
B) It tends to raise the quantity demanded of goods and services but lower the quantity supplied. 
C) It tends to lower the quantity demanded of goods and services but raise the quantity supplied. 
D) It tends to lower both the quantity demanded and the quantity supplied of goods and services. 
A) It tends to raise both the quantity demanded and supplied of goods and services. 
B) It tends to raise the quantity demanded of goods and services but lower the quantity supplied. 
C) It tends to lower the quantity demanded of goods and services but raise the quantity supplied. 
D) It tends to lower both the quantity demanded and the quantity supplied of goods and services.

Question 6

Which of the following would cause prices and real GDP to rise in the short run?

Accepted Answer

A) an increase in the expected price level 
B) an increase in the money supply 
C) a decrease in the capital stock 
D) an import tariff 
A) an increase in the expected price level 
B) an increase in the money supply 
C) a decrease in the capital stock 
D) an import tariff

Question 7

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Accepted Answer

A) Prices and output are higher. 
B) Prices and output are lower. 
C) Prices are higher and output is the same. 
D) Prices are the same and output is lower. 
A) Prices and output are higher. 
B) Prices and output are lower. 
C) Prices are higher and output is the same. 
D) Prices are the same and output is lower.

Question 8

This problem compares two economies: Economy A,having a lower elasticity of the short-run aggregate-supply curve,and economy B,with higher elasticity.Draw a graph representing an aggregate-demand curve and two short-run aggregate-supply curves,ASA and ASB,such that ASB is flatter than ASA.Both economies are in long-run equilibrium at the same output and price level.Suppose a sharp decline in the housing prices and a subsequent financial meltdown reduces the aggregate demand by the same amount in both economies.Use the graph to explain the differences in output and price declines in the two economies.What do we learn from this exercise?

Accepted Answer

Consider the next figure.Point Q is the

Question 9

Which of the following adjusts to bring aggregate supply and demand into balance?

Accepted Answer

A) the price level 
B) the real rate of interest 
C) the money supply 
D) technology 
A) the price level 
B) the real rate of interest 
C) the money supply 
D) technology

Question 10

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Accepted Answer

A) They believe that the relative price has decreased, so they increase production. 
B) They believe that the relative price has decreased, so they decrease production. 
C) They believe that the relative price has increased, so they increase production. 
D) They believe that the relative price has increased, so they decrease production. 
A) They believe that the relative price has decreased, so they increase production. 
B) They believe that the relative price has decreased, so they decrease production. 
C) They believe that the relative price has increased, so they increase production. 
D) They believe that the relative price has increased, so they decrease production.

Question 11

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Accepted Answer

A) True 
 B)False

Question 12

Review the sticky-wage theory of the short-run aggregate-supply curve.
a)Use the sticky-wage theory to explain why the short-run aggregate-supply curve is upward sloping.
b)Based on the same theory,construct an argument to explain why the aggregate-demand curve is downward sloping.Though simple and appealing,why may this theory not completely explain the short-run aggregate-demand curve?

Accepted Answer

a) When the price level increases beyond

Question 13

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

Accepted Answer

A) In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B) In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C) In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D) In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
A) In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B) In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C) In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D) In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.

Question 14

In which of the following situations does investment spending increase?

Accepted Answer

A) when the price level rises, causing interest rates to rise 
B) when the price level rises, causing interest rates to fall 
C) when the price level falls, causing interest rates to rise 
D) when the price level falls, causing interest rates to fall 
A) when the price level rises, causing interest rates to rise 
B) when the price level rises, causing interest rates to fall 
C) when the price level falls, causing interest rates to rise 
D) when the price level falls, causing interest rates to fall

Question 15

What is classical dichotomy?

Accepted Answer

A) It is the separation of variables that move with the business cycle and variables that do not. 
B) It is the separation of changes in money and changes in government expenditures. 
C) It is the separation of endogenous and exogenous variables. 
D) It is the separation of real and nominal variables. 
A) It is the separation of variables that move with the business cycle and variables that do not. 
B) It is the separation of changes in money and changes in government expenditures. 
C) It is the separation of endogenous and exogenous variables. 
D) It is the separation of real and nominal variables.

Question 16

Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2.In the long run,the change in price expectations caused by pessimism leads to which of the following shifts?

Accepted Answer

A) Long-run AS shifts left. 
B) Long-run AS shifts right. 
C) Short-run AS shifts right. 
D) Short-run AS shifts left. 
A) Long-run AS shifts left. 
B) Long-run AS shifts right. 
C) Short-run AS shifts right. 
D) Short-run AS shifts left.

Question 17

According to classical economic theory,which of the following do changes in the money supply affect?

Accepted Answer

A) real GDP 
B) real interest rates 
C) the price level 
D) unemployment 
A) real GDP 
B) real interest rates 
C) the price level 
D) unemployment

Question 18

Which of the following best describes what happens when the price level rises?

Accepted Answer

A) Households increase foreign bond purchases, and the supply of dollars increases. 
B) Households increase foreign bond purchases, and the supply of dollars decreases. 
C) Households decrease foreign bond purchases, and the supply of dollars increases. 
D) Households decrease foreign bond purchases, and the supply of dollars decreases. 
A) Households increase foreign bond purchases, and the supply of dollars increases. 
B) Households increase foreign bond purchases, and the supply of dollars decreases. 
C) Households decrease foreign bond purchases, and the supply of dollars increases. 
D) Households decrease foreign bond purchases, and the supply of dollars decreases.

Question 19

Aggregate demand shifts to the left if the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 20

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Accepted Answer

A) The real wage rises, and employment rises. 
B) The real wage rises, and employment falls. 
C) The real wage falls, and employment rises. 
D) The real wage falls, and employment falls. 
A) The real wage rises, and employment rises. 
B) The real wage rises, and employment falls. 
C) The real wage falls, and employment rises. 
D) The real wage falls, and employment falls.

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Which of the following situations would induce a shift of the aggregate demand to the right?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Figure 14-1 -Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

What does a rise in the economy's overall level of prices tend to do?

Which of the following would cause prices and real GDP to rise in the short run?

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Which of the following adjusts to bring aggregate supply and demand into balance?

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

In which of the following situations does investment spending increase?

What is classical dichotomy?

According to classical economic theory,which of the following do changes in the money supply affect?

Which of the following best describes what happens when the price level rises?

Aggregate demand shifts to the left if the money supply decreases.

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff between Inflation and Unemployment

Five Debates over Macroeconomic Policy

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Exam 14: Aggregate Demand and Aggregate Supply

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Which of the following situations would induce a shift of the aggregate demand to the right?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Figure 14-1 -Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

What does a rise in the economy's overall level of prices tend to do?

Which of the following would cause prices and real GDP to rise in the short run?

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Which of the following adjusts to bring aggregate supply and demand into balance?

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

In which of the following situations does investment spending increase?

What is classical dichotomy?

According to classical economic theory,which of the following do changes in the money supply affect?

Which of the following best describes what happens when the price level rises?

Aggregate demand shifts to the left if the money supply decreases.

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff between Inflation and Unemployment

Five Debates over Macroeconomic Policy

Filters