Question 1

Which of the following is most likely to accompany a fully anticipated reduction in short-run aggregate supply?

Accepted Answer

A) an increase in the price level 
B) a decrease in the price level 
C) a decrease in real GDP 
D) both a and c 
A) an increase in the price level 
B) a decrease in the price level 
C) a decrease in real GDP 
D) both a and c A

Question 2

Use the figure below to answer the following question(s).
Figure 10-5
  
-Figure 10-5 indicates that the output of the economy is

Accepted Answer

A) greater than the economy's long-run capacity. 
B) equal to the economy's long-run capacity. 
C) less than the economy's long-run capacity. 
D) consistent with long-run equilibrium. 
A) greater than the economy's long-run capacity. 
B) equal to the economy's long-run capacity. 
C) less than the economy's long-run capacity. 
D) consistent with long-run equilibrium. C

Question 3

Which of the following would not cause a shift in the short-run aggregate supply curve?

Accepted Answer

A) a major technological advance 
B) a decrease in the real interest rate 
C) a decrease in the expected rate of inflation 
D) an increase in resource prices 
A) a major technological advance 
B) a decrease in the real interest rate 
C) a decrease in the expected rate of inflation 
D) an increase in resource prices B

Question 4

Which of the following was a contributing factor to the instability of 2002 to 2008?

Accepted Answer

A) ideal weather from 2002 to 2006,followed by a severe drought in 2007 and 2008 
B) falling housing prices leading to an expansion,followed by rising housing prices leading to a sharp economic downturn 
C) an increase in housing prices leading to an expansion,followed by a collapse in housing prices and a sharp economic downturn 
D) falling stock prices leading to an expansion,followed by rising stock prices leading to a sharp economic downturn 
A) ideal weather from 2002 to 2006,followed by a severe drought in 2007 and 2008 
B) falling housing prices leading to an expansion,followed by rising housing prices leading to a sharp economic downturn 
C) an increase in housing prices leading to an expansion,followed by a collapse in housing prices and a sharp economic downturn 
D) falling stock prices leading to an expansion,followed by rising stock prices leading to a sharp economic downturn

Question 5

Show the short-run impact of the following factors on GDP using a graph of the aggregate goods and services market.Assume the economy was originally in long-run equilibrium.
a.a stock market crash
b.a decrease in the real interest rate
c.a flood that destroys most agricultural crops
d.a decrease in resource prices
e.an increase in the labor force
f.an increase in the expected inflation rate

Accepted Answer

a.The stock market crash would decrease

Question 6

The short-run effects of a favorable supply shock will include

Accepted Answer

A) an increase in the general level of prices and a decrease in real output. 
B) an increase in the general level of prices and an increase in real output. 
C) a decrease in the general level of prices and a decrease in real output. 
D) a decrease in the general level of prices and an increase in real output. 
A) an increase in the general level of prices and a decrease in real output. 
B) an increase in the general level of prices and an increase in real output. 
C) a decrease in the general level of prices and a decrease in real output. 
D) a decrease in the general level of prices and an increase in real output.

Question 7

During recessions,interest rates tend to fall because

Accepted Answer

A) consumers attempt to borrow money to make up for their falling income. 
B) business borrowing for investment purposes tends to fall during recessions. 
C) lower real resource prices create profit opportunities for banks. 
D) recessions shift the economy's long-run aggregate supply curve to the left. 
A) consumers attempt to borrow money to make up for their falling income. 
B) business borrowing for investment purposes tends to fall during recessions. 
C) lower real resource prices create profit opportunities for banks. 
D) recessions shift the economy's long-run aggregate supply curve to the left.

Question 8

The long-run equilibrium price level is the price level the economy is expected to reach when the

Accepted Answer

A) economy produces its potential output 
B) Fed has stabilized interest rates 
C) federal budget is balanced 
D) discount rate equals the prime rate 
E) inflation rate is zero 
A) economy produces its potential output 
B) Fed has stabilized interest rates 
C) federal budget is balanced 
D) discount rate equals the prime rate 
E) inflation rate is zero

Question 9

If the economy is operating at an output level beyond its full-employment capacity,which of the following would most likely direct the economy back to long-run equilibrium?

Accepted Answer

A) improvements in technology 
B) a decrease in the real rate of interest 
C) an increase in resource prices 
D) a decrease in resource prices 
A) improvements in technology 
B) a decrease in the real rate of interest 
C) an increase in resource prices 
D) a decrease in resource prices

Question 10

If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of incomes abroad),

Accepted Answer

A) the price of resources will decrease. 
B) the natural rate of unemployment will decrease. 
C) actual unemployment will temporarily fall below the natural rate. 
D) prices will decrease. 
A) the price of resources will decrease. 
B) the natural rate of unemployment will decrease. 
C) actual unemployment will temporarily fall below the natural rate. 
D) prices will decrease.

Question 11

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?

Accepted Answer

A) Prices will decline,bringing actual output into balance with its potential. 
B) The natural rate of unemployment will increase and,thereby,restore equilibrium. 
C) Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity. 
D) Lower interest rates will increase the economy's long-run capacity and restore equilibrium. 
A) Prices will decline,bringing actual output into balance with its potential. 
B) The natural rate of unemployment will increase and,thereby,restore equilibrium. 
C) Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity. 
D) Lower interest rates will increase the economy's long-run capacity and restore equilibrium.

Question 12

When output is greater than the economy's long-run capacity,which of the following is most likely to occur?

Accepted Answer

A) a reduction in the general level of prices 
B) an abnormally high rate of unemployment 
C) increases in real interest rates and real resource prices 
D) a reduction in imports 
A) a reduction in the general level of prices 
B) an abnormally high rate of unemployment 
C) increases in real interest rates and real resource prices 
D) a reduction in imports

Question 13

For the following changes in the economy,indicate whether short-run aggregate supply or long-run aggregate supply will be affected.Indicate the direction of the change.
a.an improvement in manufacturing technology
b.an increase in the world price of antimony (a chemical that the U.S.imports)
c.a bumper potato crop in the southern "potato belt"

Accepted Answer

a.Both long-run and short-run

Question 14

When an economy is in a recession,

Accepted Answer

A) strong demand for investment funds will push interest rates upward. 
B) strong demand for resources will push the prices of resources upward. 
C) the real interest rate will tend to rise. 
D) the unemployment rate will rise above its natural rate. 
A) strong demand for investment funds will push interest rates upward. 
B) strong demand for resources will push the prices of resources upward. 
C) the real interest rate will tend to rise. 
D) the unemployment rate will rise above its natural rate.

Question 15

How will an unanticipated decrease in aggregate demand influence equilibrium output in the goods and services market?

Accepted Answer

A) Output will increase,and the general level of prices will fall. 
B) Output will increase,and the general level of prices will rise. 
C) Output will decrease,and the general level of prices will rise. 
D) Output will decrease,and the general level of prices will fall. 
A) Output will increase,and the general level of prices will fall. 
B) Output will increase,and the general level of prices will rise. 
C) Output will decrease,and the general level of prices will rise. 
D) Output will decrease,and the general level of prices will fall.

Question 16

Which of the following reduced aggregate demand and thereby contributed to the crisis of 2008?

Accepted Answer

A) a rise in the value of the U.S.dollar 
B) falling housing and stock prices 
C) an increase in the real rate of interest 
D) optimism about future economic conditions 
A) a rise in the value of the U.S.dollar 
B) falling housing and stock prices 
C) an increase in the real rate of interest 
D) optimism about future economic conditions

Question 17

Which of the following will lead to a decrease in aggregate demand in the United States?

Accepted Answer

A) a higher price level 
B) a decrease in the real interest rate 
C) rapid growth in real income in Japan and Western Europe 
D) an increase in the exchange rate value of the dollar 
A) a higher price level 
B) a decrease in the real interest rate 
C) rapid growth in real income in Japan and Western Europe 
D) an increase in the exchange rate value of the dollar

Question 18

For the following question(s),assume that the economy is in long-run equilibrium in the aggregate demand/aggregate supply model and that some sort of event takes place.In each case,mark the most likely impact of the event on the aggregate demand/aggregate supply diagram given below.
Figure 10-19
  
-Refer to Figure 10-19.There is an increase in the expected rate of inflation.

Accepted Answer

A) The aggregate demand curve would shift to the right. 
B) The short-run aggregate supply curve would shift to the left. 
C) The price level would rise and real GDP would remain the same. 
D) All of the above are correct. 
A) The aggregate demand curve would shift to the right. 
B) The short-run aggregate supply curve would shift to the left. 
C) The price level would rise and real GDP would remain the same. 
D) All of the above are correct.

Question 19

If an unanticipated reduction in aggregate demand throws a market economy into a recession,

Accepted Answer

A) market forces will cause the economy to spiral downward and a lengthy period of depressed conditions is the expected result. 
B) lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential. 
C) higher real resource prices and interest rates will help to direct a market economy back to its full employment potential. 
D) the natural rate of unemployment will rise until it is once again equal to the actual rate of unemployment. 
A) market forces will cause the economy to spiral downward and a lengthy period of depressed conditions is the expected result. 
B) lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential. 
C) higher real resource prices and interest rates will help to direct a market economy back to its full employment potential. 
D) the natural rate of unemployment will rise until it is once again equal to the actual rate of unemployment.

Question 20

Which of the following is most likely to result in a temporary spurt in the growth of real output that cannot be maintained in the long run?

Accepted Answer

A) an anticipated increase in aggregate demand 
B) an unanticipated increase in aggregate demand 
C) an increase in long-run aggregate supply (LRAS) 
D) an increase in resource prices relative to product prices 
A) an anticipated increase in aggregate demand 
B) an unanticipated increase in aggregate demand 
C) an increase in long-run aggregate supply (LRAS) 
D) an increase in resource prices relative to product prices

Exam 10: Dynamic Change, economic Fluctuations, and the Ad-As Model

Which of the following is most likely to accompany a fully anticipated reduction in short-run aggregate supply?

Use the figure below to answer the following question(s). Figure 10-5 -Figure 10-5 indicates that the output of the economy is

Which of the following would not cause a shift in the short-run aggregate supply curve?

Which of the following was a contributing factor to the instability of 2002 to 2008?

The short-run effects of a favorable supply shock will include

During recessions,interest rates tend to fall because

The long-run equilibrium price level is the price level the economy is expected to reach when the

If the economy is operating at an output level beyond its full-employment capacity,which of the following would most likely direct the economy back to long-run equilibrium?

If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of incomes abroad),

Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?

When output is greater than the economy's long-run capacity,which of the following is most likely to occur?

When an economy is in a recession,

How will an unanticipated decrease in aggregate demand influence equilibrium output in the goods and services market?

Which of the following reduced aggregate demand and thereby contributed to the crisis of 2008?

Which of the following will lead to a decrease in aggregate demand in the United States?

If an unanticipated reduction in aggregate demand throws a market economy into a recession,

Which of the following is most likely to result in a temporary spurt in the growth of real output that cannot be maintained in the long run?

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

Aan Introduction to Basic Macroeconomic Markets

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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