Question 1

As the general price level in an economy rises,the aggregate quantity demanded of goods and services falls because

Accepted Answer

A) the prices of domestic goods have risen relative to foreign goods,causing exports to fall and imports to rise. 
B) higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. 
C) the value of money will fall,reducing the real wealth and,thus,the consumption of persons holding money balances. 
D) all of the above are correct. 
A) the prices of domestic goods have risen relative to foreign goods,causing exports to fall and imports to rise. 
B) higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. 
C) the value of money will fall,reducing the real wealth and,thus,the consumption of persons holding money balances. 
D) all of the above are correct.

Question 2

The supply of resources,level of technology,and the quality of an economy's institutional arrangements provide the constraint that determines the shape of the

Accepted Answer

A) short-run aggregate supply curve. 
B) long-run aggregate supply curve. 
C) supply of loanable funds. 
D) aggregate demand curve. 
A) short-run aggregate supply curve. 
B) long-run aggregate supply curve. 
C) supply of loanable funds. 
D) aggregate demand curve.

Question 3

The short-run aggregate supply curve (SRAS)slopes upward to the right because unexpected increases in prices will

Accepted Answer

A) increase aggregate demand as consumers buy more. 
B) decrease aggregate demand as consumers buy less. 
C) cause firms to expand output since the higher product prices will improve profitability. 
D) cause firms to reduce output since the higher product prices will decrease profit margins. 
A) increase aggregate demand as consumers buy more. 
B) decrease aggregate demand as consumers buy less. 
C) cause firms to expand output since the higher product prices will improve profitability. 
D) cause firms to reduce output since the higher product prices will decrease profit margins.

Question 4

Within the aggregate demand/aggregate supply framework,the quantity on the horizontal axis in the aggregate goods and services market represents the

Accepted Answer

A) total amount of government spending. 
B) total real output (real GDP)of the economy. 
C) total unemployment of the economy. 
D) price level of the economy. 
A) total amount of government spending. 
B) total real output (real GDP)of the economy. 
C) total unemployment of the economy. 
D) price level of the economy.

Question 5

Which of the following would generally cause firms to expand output in the short run?

Accepted Answer

A) a proportional increase in the prices of goods and services and the costs of producing them 
B) higher profit margins as the result of an unexpected increase in the prices of goods and services 
C) an unexpected reduction in aggregate demand 
D) an increase in wages and the prices of other resources 
A) a proportional increase in the prices of goods and services and the costs of producing them 
B) higher profit margins as the result of an unexpected increase in the prices of goods and services 
C) an unexpected reduction in aggregate demand 
D) an increase in wages and the prices of other resources

Question 6

If the expected rate of inflation is zero,the

Accepted Answer

A) real interest rate must also equal zero. 
B) money (nominal)interest rate must also equal zero. 
C) real interest rate must equal the money interest rate. 
D) economy is likely to experience high inflation in the near future. 
A) real interest rate must also equal zero. 
B) money (nominal)interest rate must also equal zero. 
C) real interest rate must equal the money interest rate. 
D) economy is likely to experience high inflation in the near future.

Question 7

Output in the goods and services market will be sustained into the future

Accepted Answer

A) if aggregate demand and short-run aggregate supply are in balance. 
B) only when the prior choices of decision makers were based on a correct anticipation of prices. 
C) only when prices are rising. 
D) only when wage rates are declining. 
A) if aggregate demand and short-run aggregate supply are in balance. 
B) only when the prior choices of decision makers were based on a correct anticipation of prices. 
C) only when prices are rising. 
D) only when wage rates are declining.

Question 8

The aggregate demand curve slopes downward indicating that

Accepted Answer

A) an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B) an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C) a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D) consumers substitute between domestic-made and foreign-made goods as their relative prices change. 
A) an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B) an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C) a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D) consumers substitute between domestic-made and foreign-made goods as their relative prices change.

Question 9

The potential output of an economy is the level of output produced when the

Accepted Answer

A) real wage equals the nominal wage. 
B) price level is constant. 
C) expected real wage equals the inflation rate. 
D) expected price level equals the unemployment rate. 
E) expected price level equals the actual price level. 
A) real wage equals the nominal wage. 
B) price level is constant. 
C) expected real wage equals the inflation rate. 
D) expected price level equals the unemployment rate. 
E) expected price level equals the actual price level.

Question 10

Initially,the nominal rate of interest is 8 percent and inflation is 4 percent.The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent.It follows that the real rate of interest has

Accepted Answer

A) fallen. 
B) remained the same. 
C) risen to 8 percent. 
D) risen to 10 percent. 
A) fallen. 
B) remained the same. 
C) risen to 8 percent. 
D) risen to 10 percent.

Question 11

People will spend more if the price level

Accepted Answer

A) rises because rising prices increase the real value of the fixed quantity of money. 
B) rises because rising prices decrease the real value of a dollar. 
C) falls because falling prices increase the real value of a dollar. 
D) falls because falling prices decrease the real value of a dollar. 
A) rises because rising prices increase the real value of the fixed quantity of money. 
B) rises because rising prices decrease the real value of a dollar. 
C) falls because falling prices increase the real value of a dollar. 
D) falls because falling prices decrease the real value of a dollar.

Question 12

The aggregate supply curve indicates the

Accepted Answer

A) relationship between prices and the aggregate quantity of goods and services purchased by consumers,investors,governments,and foreigners (net exports). 
B) relationship between prices and the natural rate of unemployment. 
C) relationship between the real wage rate and the quantity of labor supplied by households. 
D) quantity of goods and services producers will supply at different price levels. 
A) relationship between prices and the aggregate quantity of goods and services purchased by consumers,investors,governments,and foreigners (net exports). 
B) relationship between prices and the natural rate of unemployment. 
C) relationship between the real wage rate and the quantity of labor supplied by households. 
D) quantity of goods and services producers will supply at different price levels.

Question 13

If the dollar price of the English pound goes from $1.50 to $2.00,the dollar has

Accepted Answer

A) appreciated,and the English will find U.S.goods cheaper. 
B) appreciated,and the English will find U.S.goods more expensive. 
C) depreciated,and the English will find U.S.goods cheaper. 
D) depreciated,and the English will find U.S.goods more expensive. 
A) appreciated,and the English will find U.S.goods cheaper. 
B) appreciated,and the English will find U.S.goods more expensive. 
C) depreciated,and the English will find U.S.goods cheaper. 
D) depreciated,and the English will find U.S.goods more expensive.

Question 14

When persistent inflation is present,we would expect

Accepted Answer

A) borrowers to systematically gain at the expense of lenders. 
B) lenders to systematically gain at the expense of borrowers. 
C) nominal interest rates to be higher than would be true if prices were stable. 
D) nominal interest rates to be lower than real interest rates. 
A) borrowers to systematically gain at the expense of lenders. 
B) lenders to systematically gain at the expense of borrowers. 
C) nominal interest rates to be higher than would be true if prices were stable. 
D) nominal interest rates to be lower than real interest rates.

Question 15

Suppose the annual rate of inflation has been 3 percent during each of the last three years and that borrowers and lenders have come to expect this rate of inflation.If the inflation rate unexpectedly rises,

Accepted Answer

A) borrowers gain at the expense of lenders. 
B) lenders will gain at the expense of borrowers. 
C) the real interest rate will exceed the nominal interest rate. 
D) there is no reason to expect that the inflation will help borrowers relative to lenders. 
A) borrowers gain at the expense of lenders. 
B) lenders will gain at the expense of borrowers. 
C) the real interest rate will exceed the nominal interest rate. 
D) there is no reason to expect that the inflation will help borrowers relative to lenders.

Question 16

In 2000,a major U.S.oil company began exploration off the southeastern coast of the United States.Suppose the company discovers huge reserves of natural gas.Using the aggregate demand/ aggregate supply model,predict what shifts will occur and what will happen to output and prices in both the long and short runs.

Accepted Answer

The discovery of natural gas reserves wi

Question 17

The change in the quantity of goods and services demanded in the U.S.is based on the logic that as the price level rises,

Accepted Answer

A) real wealth falls,interest rates rise,and net exports fall. 
B) real wealth falls,interest rates rise,and net exports rise. 
C) real wealth rises,interest rates fall,and net exports fall. 
D) real wealth rises,interest rates fall,and net exports rise. 
A) real wealth falls,interest rates rise,and net exports fall. 
B) real wealth falls,interest rates rise,and net exports rise. 
C) real wealth rises,interest rates fall,and net exports fall. 
D) real wealth rises,interest rates fall,and net exports rise.

Question 18

If the expected rate of inflation is zero,the real interest rate must

Accepted Answer

A) also equal zero. 
B) be greater than the money (nominal)interest rate. 
C) be equal to the money (nominal)interest rate. 
D) be less than the money (nominal)interest rate. 
A) also equal zero. 
B) be greater than the money (nominal)interest rate. 
C) be equal to the money (nominal)interest rate. 
D) be less than the money (nominal)interest rate.

Question 19

Which of the following statements about the circular flow diagram is not correct?

Accepted Answer

A) Households receive income from the resource market;they save some of it and spend the rest of it on domestic or foreign goods and services. 
B) The loanable funds market takes net household savings and channels it in part to the government and in part to businesses for investment. 
C) Expenditures on GDP are equal to consumption plus government purchases plus investment plus net exports (exports minus imports). 
D) The net inflow of capital from foreign economies must always be positive and equal to the amount of business investment. 
A) Households receive income from the resource market;they save some of it and spend the rest of it on domestic or foreign goods and services. 
B) The loanable funds market takes net household savings and channels it in part to the government and in part to businesses for investment. 
C) Expenditures on GDP are equal to consumption plus government purchases plus investment plus net exports (exports minus imports). 
D) The net inflow of capital from foreign economies must always be positive and equal to the amount of business investment.

Question 20

For an economy,aggregate demand equals

Accepted Answer

A) consumption plus investment plus government purchases plus exports. 
B) consumption plus investment plus government purchases plus (exports minus imports). 
C) consumption plus investment plus (taxes minus transfers)plus (exports minus imports). 
D) consumption plus investment plus government purchases plus (imports minus exports). 
A) consumption plus investment plus government purchases plus exports. 
B) consumption plus investment plus government purchases plus (exports minus imports). 
C) consumption plus investment plus (taxes minus transfers)plus (exports minus imports). 
D) consumption plus investment plus government purchases plus (imports minus exports).

Exam 9: Aan Introduction to Basic Macroeconomic Markets

As the general price level in an economy rises,the aggregate quantity demanded of goods and services falls because

The supply of resources,level of technology,and the quality of an economy's institutional arrangements provide the constraint that determines the shape of the

The short-run aggregate supply curve (SRAS)slopes upward to the right because unexpected increases in prices will

Within the aggregate demand/aggregate supply framework,the quantity on the horizontal axis in the aggregate goods and services market represents the

Which of the following would generally cause firms to expand output in the short run?

If the expected rate of inflation is zero,the

Output in the goods and services market will be sustained into the future

The aggregate demand curve slopes downward indicating that

The potential output of an economy is the level of output produced when the

Initially,the nominal rate of interest is 8 percent and inflation is 4 percent.The nominal interest rate then rises to 12 percent and the inflation rate to 8 percent.It follows that the real rate of interest has

People will spend more if the price level

The aggregate supply curve indicates the

If the dollar price of the English pound goes from $1.50 to $2.00,the dollar has

When persistent inflation is present,we would expect

Suppose the annual rate of inflation has been 3 percent during each of the last three years and that borrowers and lenders have come to expect this rate of inflation.If the inflation rate unexpectedly rises,

The change in the quantity of goods and services demanded in the U.S.is based on the logic that as the price level rises,

If the expected rate of inflation is zero,the real interest rate must

Which of the following statements about the circular flow diagram is not correct?

For an economy,aggregate demand equals

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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