Question 1

When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:

Accepted Answer

A) $500 million. 
B) $250 million. 
C) $125 million. 
D) $750 million. 
A) $500 million. 
B) $250 million. 
C) $125 million. 
D) $750 million. A

Question 2

Ceteris paribus, a decrease in imports leads to a:

Accepted Answer

A) movement up and to the left along the same aggregate demand curve. 
B) movement down and to the right along the same aggregate demand curve. 
C) right shift of the aggregate demand curve. 
D) left shift of the aggregate demand curve. 
A) movement up and to the left along the same aggregate demand curve. 
B) movement down and to the right along the same aggregate demand curve. 
C) right shift of the aggregate demand curve. 
D) left shift of the aggregate demand curve. C

Question 3

An output-induced monetary policy response to lower interest rates causes a:

Accepted Answer

A) right shift of the aggregate supply curve. 
B) left shift of the aggregate demand curve. 
C) right shift of the aggregate demand curve. 
D) movement along the same aggregate demand curve. 
A) right shift of the aggregate supply curve. 
B) left shift of the aggregate demand curve. 
C) right shift of the aggregate demand curve. 
D) movement along the same aggregate demand curve. C

Question 4

Suppose that the Federal Reserve engages in contractionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 5

How does a reduction in corporate tax rates affect the economy in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Accepted Answer

The answer of How does a reduction in corporate tax...

Question 6

Which policy will shift the AD curve to the left?

Accepted Answer

A) an increase in government spending 
B) an increase in government spending. 
C) an increase in tax rates 
D) an increase in tax rates. 
E) an increase in the money supply.
F)an increase in the money supply
G)a decrease in tax rates.
H)a decrease in tax rates 
A) an increase in government spending 
B) an increase in government spending. 
C) an increase in tax rates 
D) an increase in tax rates. 
E) an increase in the money supply.
F)an increase in the money supply
G)a decrease in tax rates.
H)a decrease in tax rates

Question 7

Ceteris paribus, a decrease in government expenditure leads to a:

Accepted Answer

A) right shift of the aggregate demand curve. 
B) left shift of the aggregate demand curve. 
C) movement up and to the left along the same aggregate demand curve. 
D) movement down and to the right along the same aggregate demand curve. 
A) right shift of the aggregate demand curve. 
B) left shift of the aggregate demand curve. 
C) movement up and to the left along the same aggregate demand curve. 
D) movement down and to the right along the same aggregate demand curve.

Question 8

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 may result from a(n):

Accepted Answer

A) lower price level 
B) lower price level. 
C) higher price level 
D) higher price level. 
E) increase in aggregate spending.
F)increase in aggregate spending
G)significant decrease in consumers' income
H)significant decrease in consumers' income. 
A) lower price level 
B) lower price level. 
C) higher price level 
D) higher price level. 
E) increase in aggregate spending.
F)increase in aggregate spending
G)significant decrease in consumers' income
H)significant decrease in consumers' income.

Question 9

The short-run aggregate supply curve has a _____ slope, showing that increases in the price level will _____ the quantity of aggregate output supplied by firms.

Accepted Answer

A) positive: increase 
B) positive: increase. 
C) positive; decrease 
D) positive; decrease. 
E) negative; increase
F)negative; increase.
G)negative; decrease
H)negative; decrease. 
A) positive: increase 
B) positive: increase. 
C) positive; decrease 
D) positive; decrease. 
E) negative; increase
F)negative; increase.
G)negative; decrease
H)negative; decrease.

Question 10

An increase in government spending, all things equal, will cause the aggregate demand curve to:

Accepted Answer

A) become positively sloped. 
B) become positively sloped 
C) remain constant 
D) remain constant. 
E) shift to the right
F)shift to the right.
G)shift to the left
H)shift to the left. 
A) become positively sloped. 
B) become positively sloped 
C) remain constant 
D) remain constant. 
E) shift to the right
F)shift to the right.
G)shift to the left
H)shift to the left.

Question 11

If declining labor union membership causes workers to lose bargaining power, resulting in lower wages, production costs will:

Accepted Answer

A) increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level. 
B) increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level 
C) fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall 
D) fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall. 
E) not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price level
F)not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price level.
G)fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.
H)fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price level 
A) increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level. 
B) increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level 
C) fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall 
D) fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall. 
E) not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price level
F)not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price level.
G)fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.
H)fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price level

Question 12

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point B on AD1 to point E on AD2 may result from:

Accepted Answer

A) an increase in consumer optimism 
B) an increase in consumer optimism. 
C) an increase in consumer pessimism. 
D) an increase in consumer pessimism 
E) an increase in personal income taxes.
F)an increase in personal income taxes
G)the central bank reducing the quantity of money
H)the central bank reducing the quantity of money. 
A) an increase in consumer optimism 
B) an increase in consumer optimism. 
C) an increase in consumer pessimism. 
D) an increase in consumer pessimism 
E) an increase in personal income taxes.
F)an increase in personal income taxes
G)the central bank reducing the quantity of money
H)the central bank reducing the quantity of money.

Question 13

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Accepted Answer

A) Both prices and GDP increase. 
B) Both prices and GDP decrease. 
C) Prices increase, and GDP decreases. 
D) Prices decrease, and GDP increases. 
A) Both prices and GDP increase. 
B) Both prices and GDP decrease. 
C) Prices increase, and GDP decreases. 
D) Prices decrease, and GDP increases.

Question 14

The stock market drops significantly. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 15

Create four graphs that illustrate the four stages of the adjustment of the aggregate supply curve from the very short run to long run when there is a negative aggregate demand shock.

Accepted Answer

The answer of Create four graphs that illustrate the four...

Question 16

Explain the international trade effect on net exports when prices rise in the economy.

Accepted Answer

The answer of Explain the international trade effect on net...

Question 17

(Figure: Aggregate Supply) Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual output is _____ potential output.

Accepted Answer

A) increase; left; equal to. 
B) increase; left; equal to 
C) increase; right; greater than 
D) increase; right; greater than. 
E) decrease; right; equal to
F)decrease; right; equal to.
G)decrease; right; less than.
H)decrease; right; less than 
A) increase; left; equal to. 
B) increase; left; equal to 
C) increase; right; greater than 
D) increase; right; greater than. 
E) decrease; right; equal to
F)decrease; right; equal to.
G)decrease; right; less than.
H)decrease; right; less than

Question 18

The difference between total investment and planned investment is that:

Accepted Answer

A) planned investment is total investment minus taxes. 
B) planned investment is always larger than total investment. 
C) total investment includes changes in inventories. 
D) planned investment includes changes in inventories. 
A) planned investment is total investment minus taxes. 
B) planned investment is always larger than total investment. 
C) total investment includes changes in inventories. 
D) planned investment includes changes in inventories.

Question 19

How does a depreciation of the Kenyan shilling affect aggregate demand in Kenya in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Accepted Answer

The answer of How does a depreciation of the Kenyan...

Question 20

How does the economy adjust from the short run to the long run when there is a negative demand side shock to the economy?

Accepted Answer

The answer of How does the economy adjust from the...

Exam 33: Aggregate Demand and Aggregate Supply

When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:

Ceteris paribus, a decrease in imports leads to a:

An output-induced monetary policy response to lower interest rates causes a:

Suppose that the Federal Reserve engages in contractionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

How does a reduction in corporate tax rates affect the economy in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Which policy will shift the AD curve to the left?

Ceteris paribus, a decrease in government expenditure leads to a:

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 may result from a(n):

The short-run aggregate supply curve has a _____ slope, showing that increases in the price level will _____ the quantity of aggregate output supplied by firms.

An increase in government spending, all things equal, will cause the aggregate demand curve to:

If declining labor union membership causes workers to lose bargaining power, resulting in lower wages, production costs will:

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point B on AD1 to point E on AD2 may result from:

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

The stock market drops significantly. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Create four graphs that illustrate the four stages of the adjustment of the aggregate supply curve from the very short run to long run when there is a negative aggregate demand shock.

Explain the international trade effect on net exports when prices rise in the economy.

(Figure: Aggregate Supply) Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual output is _____ potential output.

The difference between total investment and planned investment is that:

How does a depreciation of the Kenyan shilling affect aggregate demand in Kenya in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

How does the economy adjust from the short run to the long run when there is a negative demand side shock to the economy?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

The short-run aggregate supply curve has a _ slope, showing that increases in the price level will _ the quantity of aggregate output supplied by firms.

(Figure: Aggregate Supply) Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will ___, and the short-run aggregate supply curve will shift _ until actual output is ___ potential output.