Question 1

During an economic expansion or boom, it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

Accepted Answer

A) True 
 B)False  True

Question 2

The long-run adjustment to a supply shock results in:

Accepted Answer

A) the short-run aggregate supply curve shifting to the right. 
B) the price level rising. 
C) unemployment rising. 
D) workers being willing to accept higher wages. 
A) the short-run aggregate supply curve shifting to the right. 
B) the price level rising. 
C) unemployment rising. 
D) workers being willing to accept higher wages. A

Question 3

Explain how the aggregate demand and supply model can be made more dynamic.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

We can make the aggregate demand and supply model dynamic rather than static by making three changes to the basic model. First, potential GDP increases continually because the long-run aggregate supply curve normally continually shifts to the right. This is because workers are continually entering the labour force, technological change occurs, and the economy accumulates machinery and equipment. Secondly, aggregate demand shifts to the right during most years. This is because population and income increases over time. Finally, the short-run aggregate supply curve shifts to the right, except for periods of time when workers and firms expect high rates of inflation.

Question 4

Which of the following would not be considered a positive addition to household wealth?

Accepted Answer

A) the equity that homeowners have in their own homes 
B) 1 000 shares in Qantas Airlines 
C) a credit card balance 
D) the balance in a savings account 
A) the equity that homeowners have in their own homes 
B) 1 000 shares in Qantas Airlines 
C) a credit card balance 
D) the balance in a savings account

Question 5

What is the result of an increase in the price level?

Accepted Answer

A) a shift the aggregate demand curve to the left 
B) a shift the aggregate demand curve to the right 
C) a move the economy down along a stationary aggregate demand curve 
D) a move the economy up along a stationary aggregate demand curve 
A) a shift the aggregate demand curve to the left 
B) a shift the aggregate demand curve to the right 
C) a move the economy down along a stationary aggregate demand curve 
D) a move the economy up along a stationary aggregate demand curve

Question 6

'Stagflation' occurs when short-run aggregate supply decreases.

Accepted Answer

A) True 
 B)False

Question 7

Refer to Figure 10.1 for the following questions.
Figure 10.1
  
-Suppose the economy is at point A in Figure 10.1. If consumer spending increases in the economy, where will the eventual long-run equilibrium be?

Accepted Answer

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

Question 8

The aggregate demand curve shows the relationship between the ________ and ________.

Accepted Answer

A) inflation rate; quantity of real GDP demanded 
B) real interest rate; quantity of real GDP supplied 
C) nominal interest rate; quantity of real GDP demanded 
D) price level; quantity of real GDP demanded 
A) inflation rate; quantity of real GDP demanded 
B) real interest rate; quantity of real GDP supplied 
C) nominal interest rate; quantity of real GDP demanded 
D) price level; quantity of real GDP demanded

Question 9

Spending on the national defence force is categorised as government purchases. How do increases in spending on defence affect the aggregate demand curve?

Accepted Answer

A) This will move the economy up along a stationary aggregate demand curve. 
B) This will move the economy down along a stationary aggregate demand curve. 
C) This will shift the aggregate demand curve to the left. 
D) This will shift the aggregate demand curve to the right. 
A) This will move the economy up along a stationary aggregate demand curve. 
B) This will move the economy down along a stationary aggregate demand curve. 
C) This will shift the aggregate demand curve to the left. 
D) This will shift the aggregate demand curve to the right.

Question 10

The level of long-run aggregate supply is not affected by changes in:

Accepted Answer

A) technology. 
B) the capital stock. 
C) the price level. 
D) the size of the labour force. 
A) technology. 
B) the capital stock. 
C) the price level. 
D) the size of the labour force.

Question 11

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.

Accepted Answer

A) the price level; real GDP 
B) real GDP; real GDP 
C) the price level; the price level 
D) real GDP; the price level 
A) the price level; real GDP 
B) real GDP; real GDP 
C) the price level; the price level 
D) real GDP; the price level

Question 12

The Australian federal government lowered personal income taxes numerous times throughout the 2000s. Explain how this policy affected the aggregate demand curve.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Lowering income taxes increases the amou

Question 13

The impact of a natural disaster on consumers in the economy can make them very pessimistic about their future incomes. How would an increase in pessimism affect the aggregate demand curve?

Accepted Answer

A) This will move the economy up along a stationary aggregate demand curve. 
B) This will move the economy down along a stationary aggregate demand curve. 
C) This will shift the aggregate demand curve to the left. 
D) This will shift the aggregate demand curve to the right. 
A) This will move the economy up along a stationary aggregate demand curve. 
B) This will move the economy down along a stationary aggregate demand curve. 
C) This will shift the aggregate demand curve to the left. 
D) This will shift the aggregate demand curve to the right.

Question 14

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A) Potential GDP increases continuously. 
B) Aggregate demand shifts to the right during most periods. 
C) Aggregate supply shifts to the right except during periods when workers and firms expect higher wages. 
D) Aggregate demand and potential GDP decrease continuously. 
A) Potential GDP increases continuously. 
B) Aggregate demand shifts to the right during most periods. 
C) Aggregate supply shifts to the right except during periods when workers and firms expect higher wages. 
D) Aggregate demand and potential GDP decrease continuously.

Question 15

An increase in disposable income will shift the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

When does short-run macroeconomic equilibrium occur?

Accepted Answer

A) When the price level is constant in the short-run. 
B) When the equilibrium lies on the long-run supply curve. 
C) When aggregate demand and short-run supply intersect. 
D) The two criteria - that aggregate demand and short-run aggregate supply intersect and that the equilibrium lies on the long-run supply curve - must both be satisfied. 
A) When the price level is constant in the short-run. 
B) When the equilibrium lies on the long-run supply curve. 
C) When aggregate demand and short-run supply intersect. 
D) The two criteria - that aggregate demand and short-run aggregate supply intersect and that the equilibrium lies on the long-run supply curve - must both be satisfied.

Question 17

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

Accepted Answer

A) True 
 B)False

Question 18

When does 'stagflation' occur?

Accepted Answer

A) when inflation rises and GDP falls 
B) when inflation falls and GDP rises 
C) when inflation rises and GDP rises 
D) when inflation falls and GDP falls 
A) when inflation rises and GDP falls 
B) when inflation falls and GDP rises 
C) when inflation rises and GDP rises 
D) when inflation falls and GDP falls

Question 19

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

Accepted Answer

A) True 
 B)False

Question 20

Refer to Figure 10.2 for the following questions.
Figure 10.2
  
-In Figure 10.2, given the economy is at point A in year 1 and point B in year 2, what will happen to the unemployment rate in year 2?

Accepted Answer

A) It will rise. 
B) It will fall. 
C) It will remain constant. 
D) There is not enough information to answer the question. 
A) It will rise. 
B) It will fall. 
C) It will remain constant. 
D) There is not enough information to answer the question.

During an economic expansion or boom, it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

The long-run adjustment to a supply shock results in:

Explain how the aggregate demand and supply model can be made more dynamic. _ _

Which of the following would not be considered a positive addition to household wealth?

What is the result of an increase in the price level?

'Stagflation' occurs when short-run aggregate supply decreases.

Refer to Figure 10.1 for the following questions. Figure 10.1 -Suppose the economy is at point A in Figure 10.1. If consumer spending increases in the economy, where will the eventual long-run equilibrium be?

The aggregate demand curve shows the relationship between the and .

Spending on the national defence force is categorised as government purchases. How do increases in spending on defence affect the aggregate demand curve?

The level of long-run aggregate supply is not affected by changes in:

An increase in aggregate demand causes an increase in only in the short run, but causes an increase in in both the short run and the long run.

The Australian federal government lowered personal income taxes numerous times throughout the 2000s. Explain how this policy affected the aggregate demand curve. _ _

The impact of a natural disaster on consumers in the economy can make them very pessimistic about their future incomes. How would an increase in pessimism affect the aggregate demand curve?

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

An increase in disposable income will shift the aggregate demand curve to the right.

When does short-run macroeconomic equilibrium occur?

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

When does 'stagflation' occur?

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

Refer to Figure 10.2 for the following questions. Figure 10.2 -In Figure 10.2, given the economy is at point A in year 1 and point B in year 2, what will happen to the unemployment rate in year 2?

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 10: Aggregate Demand and Aggregate Supply Analysis

During an economic expansion or boom, it is possible for a short-run equilibrium to occur at a point that exceeds potential GDP.

The long-run adjustment to a supply shock results in:

Explain how the aggregate demand and supply model can be made more dynamic. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following would not be considered a positive addition to household wealth?

What is the result of an increase in the price level?

'Stagflation' occurs when short-run aggregate supply decreases.

Refer to Figure 10.1 for the following questions. Figure 10.1 -Suppose the economy is at point A in Figure 10.1. If consumer spending increases in the economy, where will the eventual long-run equilibrium be?

The aggregate demand curve shows the relationship between the ________ and ________.

Spending on the national defence force is categorised as government purchases. How do increases in spending on defence affect the aggregate demand curve?

The level of long-run aggregate supply is not affected by changes in:

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.

The impact of a natural disaster on consumers in the economy can make them very pessimistic about their future incomes. How would an increase in pessimism affect the aggregate demand curve?

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

An increase in disposable income will shift the aggregate demand curve to the right.

When does short-run macroeconomic equilibrium occur?

An increase in the quantity of capital in the economy shifts both the short-run and long-run aggregate supply curves.

When does 'stagflation' occur?

Friedman argued that the government and central bank should use expansionary and contractionary policies to reduce fluctuations in real GDP.

Refer to Figure 10.2 for the following questions. Figure 10.2 -In Figure 10.2, given the economy is at point A in year 1 and point B in year 2, what will happen to the unemployment rate in year 2?

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Explain how the aggregate demand and supply model can be made more dynamic. _ _

The aggregate demand curve shows the relationship between the and .

An increase in aggregate demand causes an increase in only in the short run, but causes an increase in in both the short run and the long run.