Question 1

What is stagflation? How would stagflation appear in the AD-AS model?

Accepted Answer

The answer of What is stagflation? How would stagflation appear...

Question 2

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand?

Accepted Answer

A) All prices adjust, and the economy returns to long-run potential. 
B) There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will increase. 
C) There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. 
D) There is a recession as output falls sharply, and prices will not have had time to adjust. 
A) All prices adjust, and the economy returns to long-run potential. 
B) There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will increase. 
C) There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. 
D) There is a recession as output falls sharply, and prices will not have had time to adjust.

Question 3

When prices rise in Germany, what is the effect on nominal debt and consumption in Germany?

Accepted Answer

A) Nominal debt remains unchanged, but the real value of debt falls, and this encourages consumers to spend more. 
B) Nominal debt remains unchanged, but the real value of debt rises, and this discourages consumption. 
C) Nominal value of debt falls, and this encourages consumers to spend more. 
D) Nominal value of debt rises, and this encourages consumers to spend less. 
A) Nominal debt remains unchanged, but the real value of debt falls, and this encourages consumers to spend more. 
B) Nominal debt remains unchanged, but the real value of debt rises, and this discourages consumption. 
C) Nominal value of debt falls, and this encourages consumers to spend more. 
D) Nominal value of debt rises, and this encourages consumers to spend less.

Question 4

When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is:

Accepted Answer

A) 2.5. 
B) 1. 
C) 2. 
D) 3. 
A) 2.5. 
B) 1. 
C) 2. 
D) 3.

Question 5

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when exports increase due to rising foreign incomes?

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 6

The Federal Reserve cuts interest rates when inflation is too low in the economy. This is known as:

Accepted Answer

A) an inflation-induced response. 
B) an output-induced response. 
C) a market-induced response. 
D) contractionary monetary policy. 
A) an inflation-induced response. 
B) an output-induced response. 
C) a market-induced response. 
D) contractionary monetary policy.

Question 7

Ceteris paribus, an increase in investment 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

When inflation rises above its target rate, the Federal Reserve will:

Accepted Answer

A) increase taxes. 
B) place a ceiling on interest rates. 
C) raise interest rates. 
D) lower interest rates. 
A) increase taxes. 
B) place a ceiling on interest rates. 
C) raise interest rates. 
D) lower interest rates.

Question 9

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

Accepted Answer

A) lowers; raises; boosts; raises 
B) raises; lowers; boosts; raises 
C) lowers; raises; decreases; lowers 
D) raises; lowers; decreases; lowers 
A) lowers; raises; boosts; raises 
B) raises; lowers; boosts; raises 
C) lowers; raises; decreases; lowers 
D) raises; lowers; decreases; lowers

Question 10

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

Accepted Answer

A) Real interest rates rise, and this decreases consumption and aggregate expenditures. 
B) The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure. 
C) The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure. 
D) The real value of debt increases, and this increases consumption and aggregate expenditure. 
A) Real interest rates rise, and this decreases consumption and aggregate expenditures. 
B) The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure. 
C) The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure. 
D) The real value of debt increases, and this increases consumption and aggregate expenditure.

Question 11

The intersection of the aggregate demand curve and long-run aggregate supply curve:

Accepted Answer

A) determines equilibrium real GDP in both the long run and the short run 
B) determines equilibrium real GDP in both the long run and the short run. 
C) determines the equilibrium price level in both the long run and the short run 
D) determines the equilibrium price level in both the long run and the short run. 
E) occurs at potential output
F)occurs at potential output.
G)occurs at high levels of cyclical unemployment
H)occurs at high levels of cyclical unemployment. 
A) determines equilibrium real GDP in both the long run and the short run 
B) determines equilibrium real GDP in both the long run and the short run. 
C) determines the equilibrium price level in both the long run and the short run 
D) determines the equilibrium price level in both the long run and the short run. 
E) occurs at potential output
F)occurs at potential output.
G)occurs at high levels of cyclical unemployment
H)occurs at high levels of cyclical unemployment.

Question 12

Which of the following changes will lead to an increase in the price level but a decrease in the quantity of output in an economy?

Accepted Answer

A) a rise in aggregate demand 
B) a rise in aggregate supply 
C) a fall in aggregate demand 
D) a fall in aggregate supply 
A) a rise in aggregate demand 
B) a rise in aggregate supply 
C) a fall in aggregate demand 
D) a fall in aggregate supply

Question 13

A rise in prices 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.

Question 14

Suppose that the Indian manufacturing sector begins to adopt new and efficient production technologies. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in India?

Accepted Answer

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

Question 15

How do changes in each of these variables affect aggregate supply in the United States?
(i) U.S. tariffs increase import prices for U.S. producers who use foreign made inputs.
(ii) The U.S. dollar depreciates.
(iii) The U.S. dollar appreciates.

Accepted Answer

The answer of How do changes in each of these...

Question 16

Which curve is easiest to shift through government policy?

Accepted Answer

A) the short-run aggregate supply curve 
B) the short-run aggregate supply curve. 
C) the long-run aggregate supply curve 
D) the long-run aggregate supply curve. 
E) the aggregate demand curve.
F)the aggregate demand curve
G)Both the short-run and long-run aggregate supply curves are easy to shift..
H)Both the short-run and long-run aggregate supply curves are easy to shift. 
A) the short-run aggregate supply curve 
B) the short-run aggregate supply curve. 
C) the long-run aggregate supply curve 
D) the long-run aggregate supply curve. 
E) the aggregate demand curve.
F)the aggregate demand curve
G)Both the short-run and long-run aggregate supply curves are easy to shift..
H)Both the short-run and long-run aggregate supply curves are easy to shift.

Question 17

When the price level in an economy decreases, the quantity of output demanded in the economy:

Accepted Answer

A) falls. 
B) increases. 
C) stays constant. 
D) does not change unless the quantity of output supplied changes as well. 
A) falls. 
B) increases. 
C) stays constant. 
D) does not change unless the quantity of output supplied changes as well.

Question 18

Aggregate expenditure is made up of the following four components:

Accepted Answer

A) healthcare, infrastructure spending, defense spending, and social security spending. 
B) consumption, investment, government expenditure, and net exports. 
C) stocks, bonds, mutual funds, and certificates of deposit. 
D) consumption, investment, government expenditure, and taxation. 
A) healthcare, infrastructure spending, defense spending, and social security spending. 
B) consumption, investment, government expenditure, and net exports. 
C) stocks, bonds, mutual funds, and certificates of deposit. 
D) consumption, investment, government expenditure, and taxation.

Question 19

How do changes in each of these variables affect aggregate demand in Uganda?
(i) The Ugandan government rebuilds its highway infrastructure.
(ii) Corporate taxes in Uganda are reduced.
(iii) The Ugandan central bank engages in contractionary monetary policy.

Accepted Answer

The answer of How do changes in each of these...

Question 20

Which of the following changes will lead to a decrease in both the price level and the quantity of output in an economy?

Accepted Answer

A) a rise in aggregate demand 
B) a rise in aggregate supply 
C) a fall in aggregate demand 
D) a fall in aggregate supply 
A) a rise in aggregate demand 
B) a rise in aggregate supply 
C) a fall in aggregate demand 
D) a fall in aggregate supply

Exam 33: Aggregate Demand and Aggregate Supply

What is stagflation? How would stagflation appear in the AD-AS model?

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand?

When prices rise in Germany, what is the effect on nominal debt and consumption in Germany?

When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is:

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when exports increase due to rising foreign incomes?

The Federal Reserve cuts interest rates when inflation is too low in the economy. This is known as:

Ceteris paribus, an increase in investment leads to a:

When inflation rises above its target rate, the Federal Reserve will:

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

The intersection of the aggregate demand curve and long-run aggregate supply curve:

Which of the following changes will lead to an increase in the price level but a decrease in the quantity of output in an economy?

A rise in prices leads to a:

Suppose that the Indian manufacturing sector begins to adopt new and efficient production technologies. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework in India?

How do changes in each of these variables affect aggregate supply in the United States? (i) U.S. tariffs increase import prices for U.S. producers who use foreign made inputs. (ii) The U.S. dollar depreciates. (iii) The U.S. dollar appreciates.

Which curve is easiest to shift through government policy?

When the price level in an economy decreases, the quantity of output demanded in the economy:

Aggregate expenditure is made up of the following four components:

How do changes in each of these variables affect aggregate demand in Uganda? (i) The Ugandan government rebuilds its highway infrastructure. (ii) Corporate taxes in Uganda are reduced. (iii) The Ugandan central bank engages in contractionary monetary policy.

Which of the following changes will lead to a decrease in both the price level and the quantity of output in an 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

Contractionary fiscal policy ___ taxes, _ government expenditure, _ aggregate expenditures, and ___ aggregate demand.