Question 1

All else equal, what happens as the price level falls?

Accepted Answer

A)  The money supply falls. 
B)  Interest rates rise. 
C)  Dollars become more valuable. 
D)  Dollars become less valuable. 
A)  The money supply falls. 
B)  Interest rates rise. 
C)  Dollars become more valuable. 
D)  Dollars become less valuable.

Question 2

Why does an increase in the price level result in a decrease in the aggregate quantity of goods and services demanded?

Accepted Answer

A)  because as wealth rises, interest rates rise, and the dollar appreciates 
B)  because as wealth rises, interest rates fall, and the dollar depreciates 
C)  because as wealth falls, interest rates rise, and the dollar appreciates 
D)  because as wealth falls, interest rates fall, and the dollar depreciates 
A)  because as wealth rises, interest rates rise, and the dollar appreciates 
B)  because as wealth rises, interest rates fall, and the dollar depreciates 
C)  because as wealth falls, interest rates rise, and the dollar appreciates 
D)  because as wealth falls, interest rates fall, and the dollar depreciates

Question 3

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

Accepted Answer

A)  In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C)  In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
A)  In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same. 
B)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. 
C)  In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall. 
D)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.

Question 4

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP, argue that declines in these variables are to be expected.

Accepted Answer

Variables that fall along with real GDP

Question 5

Figure 14-1

-Refer to the Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

Accepted Answer

A)  from A to B 
B)  from C to B 
C)  from D to C 
D)  From C to A 
A)  from A to B 
B)  from C to B 
C)  from D to C 
D)  From C to A

Question 6

What is included in the aggregate demand for goods and services?

Accepted Answer

A)  intermediate goods 
B)  technology 
C)  net exports 
D)  government deficit 
A)  intermediate goods 
B)  technology 
C)  net exports 
D)  government deficit

Question 7

What was the main reason for the economic boom of the early 1940s?

Accepted Answer

A)  increased government expenditures 
B)  falling prices of oil and other natural resources 
C)  an increase in the immigration of skilled workers 
D)  rapid developments in transportation, electronics, and communication 
A)  increased government expenditures 
B)  falling prices of oil and other natural resources 
C)  an increase in the immigration of skilled workers 
D)  rapid developments in transportation, electronics, and communication

Question 8

What happens to prices and output when the long-run aggregate-supply curve shifts right?

Accepted Answer

A)  Prices and output both increase. 
B)  Prices and output both decrease. 
C)  Prices increase and output decreases. 
D)  Prices decrease and output increases. 
A)  Prices and output both increase. 
B)  Prices and output both decrease. 
C)  Prices increase and output decreases. 
D)  Prices decrease and output increases.

Question 9

What did The General Theory, a 1936 book by John Maynard Keynes, attempt to explain?

Accepted Answer

A)  stagflation 
B)  the long-run effects of government policies 
C)  short-run economic fluctuations 
D)  how changes in the money supply had created the Great Depression 
A)  stagflation 
B)  the long-run effects of government policies 
C)  short-run economic fluctuations 
D)  how changes in the money supply had created the Great Depression

Question 10

What impact do changes in the price of oil have on producers who use oil inputs today as compared to producers who used oil inputs during the OPEC price shock in 1973?

Accepted Answer

A)  greater impact 
B)  smaller impact 
C)  no impact 
D)  similar impact 
A)  greater impact 
B)  smaller impact 
C)  no impact 
D)  similar impact

Question 11

Which of the following shifts the short-run, but not the long-run, aggregate supply right?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the expected price level 
C)  a decrease in the natural rate of unemployment 
D)  a decrease in the savings rate 
A)  a decrease in the price level 
B)  a decrease in the expected price level 
C)  a decrease in the natural rate of unemployment 
D)  a decrease in the savings rate

Question 12

Which statement best describes the effects of a fall in the price level?

Accepted Answer

A)  The real value of money and the real exchange rate rise. 
B)  The real value of money and the real exchange rate fall. 
C)  The real value of money rises, and the real exchange rate falls. 
D)  The real value of money falls, and the real exchange rate rises. 
A)  The real value of money and the real exchange rate rise. 
B)  The real value of money and the real exchange rate fall. 
C)  The real value of money rises, and the real exchange rate falls. 
D)  The real value of money falls, and the real exchange rate rises.

Question 13

Scenario 14-1
The economy is in long-run equilibrium. Suddenly, due to improved international relations, a boom experienced by a major trading partner, and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.
-Refer to the Scenario 14-1. How does the new long-run equilibrium differ from the original one?

Accepted Answer

A)  Both the price level and real GDP are higher. 
B)  Both the price level and real GDP are lower. 
C)  The price level is the same and real GDP is higher. 
D)  The price level is higher and real GDP is the same. 
A)  Both the price level and real GDP are higher. 
B)  Both the price level and real GDP are lower. 
C)  The price level is the same and real GDP is higher. 
D)  The price level is higher and real GDP is the same.

Question 14

Keynes thought that the behaviour of the economy in the short run was influenced by what he called "animal spirits." By this he meant that businesspeople sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in GDP and prices.

Accepted Answer

Fluctuations in investment cause the agg

Question 15

What are the effects of a decrease in Canadian interest rates?

Accepted Answer

A)  a depreciation of the dollar and greater net exports 
B)  a depreciation of the dollar and smaller net exports 
C)  an appreciation of the dollar and greater net exports 
D)  an appreciation of the dollar and smaller net exports 
A)  a depreciation of the dollar and greater net exports 
B)  a depreciation of the dollar and smaller net exports 
C)  an appreciation of the dollar and greater net exports 
D)  an appreciation of the dollar and smaller net exports

Question 16

How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

Accepted Answer

A)  They rise in the short run and rise even more in the long run. 
B)  They rise in the short run and fall back to their original level in the long run. 
C)  They fall in the short run and fall even more in the long run. 
D)  They fall in the short run and rise back to their original level in the long run. 
A)  They rise in the short run and rise even more in the long run. 
B)  They rise in the short run and fall back to their original level in the long run. 
C)  They fall in the short run and fall even more in the long run. 
D)  They fall in the short run and rise back to their original level in the long run.

Question 17

Which term refers to a short period of falling incomes and rising unemployment?

Accepted Answer

A)  depression 
B)  recession 
C)  expansion 
D)  business cycle 
A)  depression 
B)  recession 
C)  expansion 
D)  business cycle

Question 18

According to the misperceptions theory of the short-run aggregate supply curve, if the price level increases more than people expect, how do firms change their behaviour?

Accepted Answer

A)  They believe that the relative price has decreased, so they increase production. 
B)  They believe that the relative price has decreased, so they decrease production. 
C)  They believe that the relative price has increased, so they increase production. 
D)  They believe that the relative price has increased, so they decrease production. 
A)  They believe that the relative price has decreased, so they increase production. 
B)  They believe that the relative price has decreased, so they decrease production. 
C)  They believe that the relative price has increased, so they increase production. 
D)  They believe that the relative price has increased, so they decrease production.

Question 19

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Accepted Answer

A) True 
 B)False

Question 20

Use the sticky-wage theory to explain why an increase in the expected price level shifts the aggregate-supply curve.

Accepted Answer

When people expect the price l

All else equal, what happens as the price level falls?

Why does an increase in the price level result in a decrease in the aggregate quantity of goods and services demanded?

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP, argue that declines in these variables are to be expected.

Figure 14-1 -Refer to the Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

What is included in the aggregate demand for goods and services?

What was the main reason for the economic boom of the early 1940s?

What happens to prices and output when the long-run aggregate-supply curve shifts right?

What did The General Theory, a 1936 book by John Maynard Keynes, attempt to explain?

What impact do changes in the price of oil have on producers who use oil inputs today as compared to producers who used oil inputs during the OPEC price shock in 1973?

Which of the following shifts the short-run, but not the long-run, aggregate supply right?

Which statement best describes the effects of a fall in the price level?

What are the effects of a decrease in Canadian interest rates?

How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

Which term refers to a short period of falling incomes and rising unemployment?

According to the misperceptions theory of the short-run aggregate supply curve, if the price level increases more than people expect, how do firms change their behaviour?

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Use the sticky-wage theory to explain why an increase in the expected price level shifts the aggregate-supply curve.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 14: Aggregate Demand and Aggregate Supply

All else equal, what happens as the price level falls?

Why does an increase in the price level result in a decrease in the aggregate quantity of goods and services demanded?

Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, what would we expect to happen?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP, argue that declines in these variables are to be expected.

Figure 14-1 -Refer to the Figure 14-1. Which path indicates how the economy would move to long run equilibrium?

What is included in the aggregate demand for goods and services?

What was the main reason for the economic boom of the early 1940s?

What happens to prices and output when the long-run aggregate-supply curve shifts right?

What did The General Theory, a 1936 book by John Maynard Keynes, attempt to explain?

What impact do changes in the price of oil have on producers who use oil inputs today as compared to producers who used oil inputs during the OPEC price shock in 1973?

Which of the following shifts the short-run, but not the long-run, aggregate supply right?

Which statement best describes the effects of a fall in the price level?

What are the effects of a decrease in Canadian interest rates?

How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

Which term refers to a short period of falling incomes and rising unemployment?

According to the misperceptions theory of the short-run aggregate supply curve, if the price level increases more than people expect, how do firms change their behaviour?

The explanations for the downward slope of the aggregate demand curve say that as the price level rises, consumption, investment, and net exports all fall.

Use the sticky-wage theory to explain why an increase in the expected price level shifts the aggregate-supply curve.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters