Question 1

If the actual price level for goods and services turns out to be higher than expected, workers will

Accepted Answer

A) find their purchasing power is higher than expected. 
B) realize higher real wages. 
C) seek higher nominal wages. 
D) ask for wage decreases to keep their employment. 
A) find their purchasing power is higher than expected. 
B) realize higher real wages. 
C) seek higher nominal wages. 
D) ask for wage decreases to keep their employment.

Question 2

If government policymakers are shortsighted and use monetary or fiscal policy to increase aggregate demand, then they will

Accepted Answer

A) encourage growth with little inflation in the long run. 
B) tend to focus on short-run benefits while ignoring the possibility of accelerating inflation in the long run. 
C) be careful to guard against long-run inflation. 
D) All of the above are correct. 
A) encourage growth with little inflation in the long run. 
B) tend to focus on short-run benefits while ignoring the possibility of accelerating inflation in the long run. 
C) be careful to guard against long-run inflation. 
D) All of the above are correct.

Question 3

Which of these are excluded from the aggregate expenditures of the government sector?

Accepted Answer

A) expenditures for roads and bridges 
B) spending on unemployment benefits 
C) national defense spending 
D) spending on K-12 education 
A) expenditures for roads and bridges 
B) spending on unemployment benefits 
C) national defense spending 
D) spending on K-12 education

Question 4

The short-run aggregate supply curve is upward sloping because

Accepted Answer

A) output prices rise and fall faster than input prices rise and fall, respectively. 
B) of the real balance effect. 
C) of the substitution-of-foreign-goods effect. 
D) of the interest rate effect. 
A) output prices rise and fall faster than input prices rise and fall, respectively. 
B) of the real balance effect. 
C) of the substitution-of-foreign-goods effect. 
D) of the interest rate effect.

Question 5

If the economy is in short-run equilibrium but not in long-run equilibrium, what forces cause the economy to return to long-run equilibrium?

Accepted Answer

A) Input prices change, causing the short-run aggregate supply curve to shift. 
B) The long-run aggregate supply curve shifts until long-run equilibrium is restored. 
C) The aggregate demand curve shifts, causing price changes that restore long-run equilibrium. 
D) None of the above is correct. 
A) Input prices change, causing the short-run aggregate supply curve to shift. 
B) The long-run aggregate supply curve shifts until long-run equilibrium is restored. 
C) The aggregate demand curve shifts, causing price changes that restore long-run equilibrium. 
D) None of the above is correct.

Question 6

In the long run, if aggregate demand increases,

Accepted Answer

A) output increases while prices fall. 
B) only prices fall. 
C) only prices rise. 
D) both output and prices fall. 
A) output increases while prices fall. 
B) only prices fall. 
C) only prices rise. 
D) both output and prices fall.

Question 7

Which of the following is most likely to cause an increase in aggregate demand?

Accepted Answer

A) an increase in interest rates 
B) a decrease in national income 
C) an increase in exports 
D) a decrease in defense spending by the federal government 
A) an increase in interest rates 
B) a decrease in national income 
C) an increase in exports 
D) a decrease in defense spending by the federal government

Question 8

The substitution effect means consumers substitute good A for Good B if Good A is

Accepted Answer

A) relatively more expensive. 
B) of higher quality. 
C) more closely aligned with the natural level of real output. 
D) relatively cheaper. 
A) relatively more expensive. 
B) of higher quality. 
C) more closely aligned with the natural level of real output. 
D) relatively cheaper.

Question 9

When all prices (including wages) have fully adjusted to previous shifts in aggregate supply or demand and the flow of spending, saving, borrowing, and lending will continue until something else changes, this is called

Accepted Answer

A) the substitution-of-foreign-goods effect. 
B) the wealth effect or real-balances effect. 
C) the constant nominal income effect. 
D) long-run equilibrium. 
A) the substitution-of-foreign-goods effect. 
B) the wealth effect or real-balances effect. 
C) the constant nominal income effect. 
D) long-run equilibrium.

Question 10

__________explains why price level decreases for a given supply of nominal money balances cause an increase in the quantity of aggregate demand.

Accepted Answer

A) The substitution-of-foreign-goods effect 
B) The wealth effect or real-balances effect 
C) The real income effect 
D) Long-run equilibrium 
A) The substitution-of-foreign-goods effect 
B) The wealth effect or real-balances effect 
C) The real income effect 
D) Long-run equilibrium

Question 11

Which of the following is not a cause of a change in aggregate demand?

Accepted Answer

A) changes in personal income taxes 
B) changes in government spending 
C) changes in expected inflation 
D) higher oil prices 
A) changes in personal income taxes 
B) changes in government spending 
C) changes in expected inflation 
D) higher oil prices

Question 12

The largest component of spending is which of the following?

Accepted Answer

A) consumption 
B) investment 
C) government purchases 
D) net exports 
A) consumption 
B) investment 
C) government purchases 
D) net exports

Question 13

The short-run aggregate supply curve will shift leftward when

Accepted Answer

A) consumption spending, investment spending, government purchases, or net exports decrease. 
B) price expectations are revised upward. 
C) actual prices in the economy as a whole increase. 
D) the economy's natural output level falls. 
A) consumption spending, investment spending, government purchases, or net exports decrease. 
B) price expectations are revised upward. 
C) actual prices in the economy as a whole increase. 
D) the economy's natural output level falls.

Question 14

In the AD/AS framework, the natural level of real output is determined by the quantity and quality of the factors of production, which include all of the following except

Accepted Answer

A) capital stock. 
B) natural resources. 
C) money supply. 
D) the labor force. 
A) capital stock. 
B) natural resources. 
C) money supply. 
D) the labor force.

Question 15

With the economy in long-run equilibrium, if the Fed moves unexpectedly to raise aggregate demand by increasing the reserves of depository institutions through substantial open market purchases, what happens in the short-run?

Accepted Answer

A) Interest rates will fall. 
B) Inventories will decline unexpectedly. 
C) There will be upward pressure on output prices. 
D) All of the above are correct. 
A) Interest rates will fall. 
B) Inventories will decline unexpectedly. 
C) There will be upward pressure on output prices. 
D) All of the above are correct.

Question 16

Price expectations are a function of which of the following?

Accepted Answer

A) current and past prices, expected changes in aggregate demand, and expected changes in production costs 
B) current prices only 
C) current and past prices only 
D) None of the above is correct. 
A) current and past prices, expected changes in aggregate demand, and expected changes in production costs 
B) current prices only 
C) current and past prices only 
D) None of the above is correct.

Question 17

Which of the following phrases best explains the short-run aggregate supply curve's upward slope?

Accepted Answer

A) Actual prices equal expected prices. 
B) Expected prices are higher than actual prices. 
C) Output prices increase faster than input prices. 
D) The real balances effect ensures a positive slope. 
A) Actual prices equal expected prices. 
B) Expected prices are higher than actual prices. 
C) Output prices increase faster than input prices. 
D) The real balances effect ensures a positive slope.

Question 18

Consumption demand does not include purchases of which of the following?

Accepted Answer

A) stocks and bonds 
B) durable goods 
C) nondurable goods 
D) services 
A) stocks and bonds 
B) durable goods 
C) nondurable goods 
D) services

Question 19

Which of the following is most likely to cause an increase in aggregate demand?

Accepted Answer

A) a decrease in interest rates 
B) a decrease in national income 
C) an increase in imports 
D) a decrease in defense spending by the federal government 
A) a decrease in interest rates 
B) a decrease in national income 
C) an increase in imports 
D) a decrease in defense spending by the federal government

Question 20

The relationship between the price level and the quantity of real output demanded is which of the following?

Accepted Answer

A) Direct (positive) 
B) Indirect 
C) Circuitous 
D) Inverse (negative) 
A) Direct (positive) 
B) Indirect 
C) Circuitous 
D) Inverse (negative)

Exam 22: Aggregate Demand and Aggregate Supply

If the actual price level for goods and services turns out to be higher than expected, workers will

If government policymakers are shortsighted and use monetary or fiscal policy to increase aggregate demand, then they will

Which of these are excluded from the aggregate expenditures of the government sector?

The short-run aggregate supply curve is upward sloping because

If the economy is in short-run equilibrium but not in long-run equilibrium, what forces cause the economy to return to long-run equilibrium?

In the long run, if aggregate demand increases,

Which of the following is most likely to cause an increase in aggregate demand?

The substitution effect means consumers substitute good A for Good B if Good A is

When all prices (including wages) have fully adjusted to previous shifts in aggregate supply or demand and the flow of spending, saving, borrowing, and lending will continue until something else changes, this is called

__________explains why price level decreases for a given supply of nominal money balances cause an increase in the quantity of aggregate demand.

Which of the following is not a cause of a change in aggregate demand?

The largest component of spending is which of the following?

The short-run aggregate supply curve will shift leftward when

In the AD/AS framework, the natural level of real output is determined by the quantity and quality of the factors of production, which include all of the following except

With the economy in long-run equilibrium, if the Fed moves unexpectedly to raise aggregate demand by increasing the reserves of depository institutions through substantial open market purchases, what happens in the short-run?

Price expectations are a function of which of the following?

Which of the following phrases best explains the short-run aggregate supply curve's upward slope?

Consumption demand does not include purchases of which of the following?

Which of the following is most likely to cause an increase in aggregate demand?

The relationship between the price level and the quantity of real output demanded is which of the following?

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

How Exchange Rates Are Determined

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

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