Question 1

Why does the aggregate supply curve change from horizontal to vertical over the course of the very short run to the long run?

Accepted Answer

A) Fiscal policy works to shift aggregate supply to potential GDP. 
B) Monetary policy works to shift aggregate supply to potential GDP. 
C) As prices begin to adjust, businesses adjust production and the economy recovers to potential GDP. 
D) The level of production in the economy reduces until a certain fixed level. 
A) Fiscal policy works to shift aggregate supply to potential GDP. 
B) Monetary policy works to shift aggregate supply to potential GDP. 
C) As prices begin to adjust, businesses adjust production and the economy recovers to potential GDP. 
D) The level of production in the economy reduces until a certain fixed level.

Question 2

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

Accepted Answer

A) an increase in investment spending following optimistic GDP forecasts 
B) an increase in investment spending following optimistic GDP forecasts. 
C) a decrease in investment spending following pessimistic GDP forecasts 
D) a decrease in investment spending following pessimistic GDP forecasts. 
E) a decrease in taxes paid by businesses
F)a decrease in taxes paid by businesses.
G)lower interest rates.
H)lower interest rates 
A) an increase in investment spending following optimistic GDP forecasts 
B) an increase in investment spending following optimistic GDP forecasts. 
C) a decrease in investment spending following pessimistic GDP forecasts 
D) a decrease in investment spending following pessimistic GDP forecasts. 
E) a decrease in taxes paid by businesses
F)a decrease in taxes paid by businesses.
G)lower interest rates.
H)lower interest rates

Question 3

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the IMMEDIATE 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 moderate. 
C) There is a sharp fall in prices 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 moderate. 
C) There is a sharp fall in prices 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 4

How do changes in each of these variables affect aggregate supply?
(i) The Brazilian economy experiences a decline in productivity.
(ii) An agricultural-based economy faces high costs for imported farm machinery and equipment.
(iii) The Organization of the Petroleum Exporting Countries (OPEC) increases production of oil and thus lowers oil prices.

Accepted Answer

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

Question 5

Suppose that the Kenyan government engages in expansionary fiscal 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 6

Ceteris paribus, an increase 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.

Question 7

The short-run aggregate supply curve is:

Accepted Answer

A) downward sloping. 
B) downward sloping 
C) upward sloping. 
D) upward sloping 
E) horizontal at the natural rate of unemployment
F)horizontal at the natural rate of unemployment.
G)vertical at potential output
H)vertical at potential output. 
A) downward sloping. 
B) downward sloping 
C) upward sloping. 
D) upward sloping 
E) horizontal at the natural rate of unemployment
F)horizontal at the natural rate of unemployment.
G)vertical at potential output
H)vertical at potential output.

Question 8

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

Accepted Answer

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

Question 9

A fall in prices causes:

Accepted Answer

A) a leftward shift of the aggregate demand curve 
B) a rightward shift of the aggregate supply curve. 
C) a rightward shift of the aggregate demand curve. 
D) movement along a curve, not a shift in a curve. 
A) a leftward shift of the aggregate demand curve 
B) a rightward shift of the aggregate supply curve. 
C) a rightward shift of the aggregate demand curve. 
D) movement along a curve, not a shift in a curve.

Question 10

When inflation falls below 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 11

When the government raises government spending by $50 million, what is the final effect on GDP if the multiplier is 2.5?

Accepted Answer

The answer of When the government raises government spending by...

Question 12

A 25% tariff on steel imports is implemented. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework for the importing country?

Accepted Answer

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

Question 13

The U.S. dollar appreciates. Ceteris paribus, which of the graphs shows the correct effect on aggregate supply?

Accepted Answer

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

Question 14

In the AD-AS framework, price and quantity are represented by _____, respectively.

Accepted Answer

A) the GDP deflator and the real GDP 
B) the real GDP and the real interest rate 
C) nominal interest rates and the real GDP 
D) the real interest rate and consumption 
A) the GDP deflator and the real GDP 
B) the real GDP and the real interest rate 
C) nominal interest rates and the real GDP 
D) the real interest rate and consumption

Question 15

When prices fall in Germany, what is the effect on consumption and aggregate expenditure in Germany?

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 16

Why is the very short-run aggregate supply curve horizontal?

Accepted Answer

A) Businesses have not adjusted their prices yet after an economic shock. 
B) This is the price ceiling for the economy. 
C) Production has returned to potential GDP levels. 
D) This is the price level consistent with the Federal Reserve's inflation target. 
A) Businesses have not adjusted their prices yet after an economic shock. 
B) This is the price ceiling for the economy. 
C) Production has returned to potential GDP levels. 
D) This is the price level consistent with the Federal Reserve's inflation target.

Question 17

An increase in Social Security benefits will likely ____ consumption and shift the aggregate demand curve to the ____.

Accepted Answer

A) increase; right 
B) increase; right. 
C) increase; left 
D) increase; left. 
E) not change; left
F)not change; left.
G)decrease; left
H)decrease; left. 
A) increase; right 
B) increase; right. 
C) increase; left 
D) increase; left. 
E) not change; left
F)not change; left.
G)decrease; left
H)decrease; left.

Question 18

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

Accepted Answer

A) an increase in government spending 
B) an increase in government spending. 
C) a decrease in government spending 
D) a decrease in government spending. 
E) an increase in personal income taxes.
F)an increase in personal income taxes
G)a decrease in consumer wealt
H)a decrease in consumer wealt. 
A) an increase in government spending 
B) an increase in government spending. 
C) a decrease in government spending 
D) a decrease in government spending. 
E) an increase in personal income taxes.
F)an increase in personal income taxes
G)a decrease in consumer wealt
H)a decrease in consumer wealt.

Question 19

How do the multiplier and crowding out affect AD?

Accepted Answer

The answer of How do the multiplier and crowding out...

Question 20

Ceteris paribus, an increase in exports 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.

Exam 33: Aggregate Demand and Aggregate Supply

Why does the aggregate supply curve change from horizontal to vertical over the course of the very short run to the long run?

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

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

Suppose that the Kenyan government engages in expansionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

Ceteris paribus, an increase in imports leads to a:

The short-run aggregate supply curve is:

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

A fall in prices causes:

When inflation falls below its target rate, the Federal Reserve will:

When the government raises government spending by $50 million, what is the final effect on GDP if the multiplier is 2.5?

A 25% tariff on steel imports is implemented. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework for the importing country?

The U.S. dollar appreciates. Ceteris paribus, which of the graphs shows the correct effect on aggregate supply?

In the AD-AS framework, price and quantity are represented by _____, respectively.

When prices fall in Germany, what is the effect on consumption and aggregate expenditure in Germany?

Why is the very short-run aggregate supply curve horizontal?

An increase in Social Security benefits will likely ____ consumption and shift the aggregate demand curve to the ____.

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

How do the multiplier and crowding out affect AD?

Ceteris paribus, an increase in exports leads to a:

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

Expansionary monetary policy ___ consumption, investment, and net exports; _ aggregate expenditures; and ___ aggregate demand.

An increase in Social Security benefits will likely consumption and shift the aggregate demand curve to the .