Question 1

In the long run, the aggregate supply curve is vertical because the:

Accepted Answer

A) output becomes fully flexible. 
B) prices become fixed in the long run. 
C) prices remain sticky, and thus the economy cannot produce more than a certain fixed level of GDP. 
D) quantity of output returns to potential GDP as market prices adjust and resource markets return to equilibrium. 
A) output becomes fully flexible. 
B) prices become fixed in the long run. 
C) prices remain sticky, and thus the economy cannot produce more than a certain fixed level of GDP. 
D) quantity of output returns to potential GDP as market prices adjust and resource markets return to equilibrium.

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

Expansionary 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 4

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. An increase in aggregate demand is illustrated by a movement from:
   
a. AD1 to AD2.
b. AD1 to AD2.
c. point C to point A.
d. point C to point A.
e. point B to point A.
f. point B to point A.
g. point C to point E.
h. point C to point E.

Accepted Answer

The answer of (Figure: Shift of the Aggregate Demand Curve)...

Question 5

Explain the exchange rate effect relationship between higher interest rates and net exports.

Accepted Answer

The answer of Explain the exchange rate effect relationship between...

Question 6

A fall in prices leads to a:

Accepted Answer

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

Question 7

The higher the prices in an economy, the:
(i) lower the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) more expensive the country's exports.

Accepted Answer

A) (i), (ii), and (iv) 
B) (i), (ii), (iii), and (iv) 
C) (iii) and (iv) 
D) (iv) only 
A) (i), (ii), and (iv) 
B) (i), (ii), (iii), and (iv) 
C) (iii) and (iv) 
D) (iv) only

Question 8

In 2016, worries about the stock market caused consumer confidence in Asia to fall. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

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 9

What is meant by the interest rate effect of a change in the aggregate price level, and why does it help explain the shape of the aggregate demand curve?

Accepted Answer

The answer of What is meant by the interest rate...

Question 10

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

Accepted Answer

A) Exports become cheaper, imports become more expensive, net exports rise, and aggregate expenditure rises. 
B) Real interest rates rise, leading to capital inflows and dollar appreciation, and exports rise and imports fall; thus, both net exports and aggregate expenditure fall. 
C) The real value of exports rises, the real value of imports falls, net exports fall, and aggregate expenditure falls. 
D) Exports become more expensive, imports become cheaper, net exports fall, and aggregate expenditure falls. 
A) Exports become cheaper, imports become more expensive, net exports rise, and aggregate expenditure rises. 
B) Real interest rates rise, leading to capital inflows and dollar appreciation, and exports rise and imports fall; thus, both net exports and aggregate expenditure fall. 
C) The real value of exports rises, the real value of imports falls, net exports fall, and aggregate expenditure falls. 
D) Exports become more expensive, imports become cheaper, net exports fall, and aggregate expenditure falls.

Question 11

Macroeconomic equilibrium occurs when:

Accepted Answer

A) the economy has reached its maximum capacity. 
B) the real GDP is equal to the potential GDP. 
C) the quantity of output that buyers collectively want to buy is equal to the quantity of output that sellers collectively produce. 
D) unemployment is at the lowest possible level. 
A) the economy has reached its maximum capacity. 
B) the real GDP is equal to the potential GDP. 
C) the quantity of output that buyers collectively want to buy is equal to the quantity of output that sellers collectively produce. 
D) unemployment is at the lowest possible level.

Question 12

When prices fall 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 13

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure?

Accepted Answer

A) Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure. 
B) Government expenditure rises, and this increases imports, net exports, and aggregate expenditure. 
C) The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall. 
D) Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure. 
A) Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure. 
B) Government expenditure rises, and this increases imports, net exports, and aggregate expenditure. 
C) The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall. 
D) Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

Question 14

Short-run aggregate supply _____ when producers are willing to supply more at any given price level. This is shown graphically as a _____.

Accepted Answer

A) increases; shift to the right 
B) increases; shift to the right. 
C) increases; shift to the left 
D) increases; shift to the left. 
E) decreases; shift to the left
F)decreases; shift to the left.
G)decreases; shift to the right
H)decreases; shift to the right. 
A) increases; shift to the right 
B) increases; shift to the right. 
C) increases; shift to the left 
D) increases; shift to the left. 
E) decreases; shift to the left
F)decreases; shift to the left.
G)decreases; shift to the right
H)decreases; shift to the right.

Question 15

A spending cut 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 16

Holding other things equal, an increase in consumer spending 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 17

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when the government offers businesses a tax incentive if they invest?

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 18

Suppose that the Central Bank of Kenya engages in expansionary 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 19

Explain the real wealth effect on consumption when prices rise in the economy.

Accepted Answer

The answer of Explain the real wealth effect on consumption...

Question 20

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

Accepted Answer

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

Exam 33: Aggregate Demand and Aggregate Supply

In the long run, the aggregate supply curve is vertical because the:

(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:

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

Explain the exchange rate effect relationship between higher interest rates and net exports.

A fall in prices leads to a:

The higher the prices in an economy, the: (i) lower the purchasing power of the currency. (ii) lower the real wealth in the economy. (iii) higher the real wealth in an economy. (iv) more expensive the country's exports.

In 2016, worries about the stock market caused consumer confidence in Asia to fall. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

What is meant by the interest rate effect of a change in the aggregate price level, and why does it help explain the shape of the aggregate demand curve?

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

Macroeconomic equilibrium occurs when:

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

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure?

Short-run aggregate supply _____ when producers are willing to supply more at any given price level. This is shown graphically as a _____.

A spending cut leads to a:

Holding other things equal, an increase in consumer spending leads to a:

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when the government offers businesses a tax incentive if they invest?

Suppose that the Central Bank of Kenya engages in expansionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

Explain the real wealth effect on consumption when prices rise in the economy.

An inflation-induced monetary policy response to lower interest rates causes 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 fiscal policy ___ taxes, _ government expenditure, _ aggregate expenditures, and __ aggregate demand.

Short-run aggregate supply _ when producers are willing to supply more at any given price level. This is shown graphically as a _.