Question 1

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 2

The short-run effect of a sudden increase in stock prices will be

Accepted Answer

A)  an increase in output and a decrease in prices. 
B)  an increase in both output and prices. 
C)  a decrease in both output and prices. 
D)  a decrease in output and an increase in prices. 
A)  an increase in output and a decrease in prices. 
B)  an increase in both output and prices. 
C)  a decrease in both output and prices. 
D)  a decrease in output and an increase in prices.

Question 3

If the general level of prices is lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources, which of the following is most likely to occur?

Accepted Answer

A)  an economic boom 
B)  highly attractive profit margins 
C)  output less than the economy's long-run potential 
D)  a sharp increase in imports 
A)  an economic boom 
B)  highly attractive profit margins 
C)  output less than the economy's long-run potential 
D)  a sharp increase in imports

Question 4

Other things constant, a reduction in the real interest rate will

Accepted Answer

A)  cause consumers to cut back on their purchases of durable items like automobiles. 
B)  induce businesses to increase their level of investment. 
C)  increase the natural rate of unemployment. 
D)  increase the actual rate of unemployment. 
A)  cause consumers to cut back on their purchases of durable items like automobiles. 
B)  induce businesses to increase their level of investment. 
C)  increase the natural rate of unemployment. 
D)  increase the actual rate of unemployment.

Question 5

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?

Accepted Answer

A)  an increase in the price level (inflation) 
B)  an increase in the rate of unemployment 
C)  a reduction in the growth rate of real GDP 
D)  a decrease in LRAS to restore full employment 
A)  an increase in the price level (inflation) 
B)  an increase in the rate of unemployment 
C)  a reduction in the growth rate of real GDP 
D)  a decrease in LRAS to restore full employment

Question 6

Use the figure below to answer the following question(s).
Figure 10-9
  
-The output of the economy depicted in Figure 10-9 is

Accepted Answer

A)  equal to the full-employment output level. 
B)  less than the full-employment output level. 
C)  greater than the full-employment output level. 
D)  sustainable in the long run. 
A)  equal to the full-employment output level. 
B)  less than the full-employment output level. 
C)  greater than the full-employment output level. 
D)  sustainable in the long run.

Question 7

An anticipated change is an economic occurrence that

Accepted Answer

A)  catches most people by surprise. 
B)  is foreseen by most economic participants. 
C)  is anticipated by economists but unforeseen by other people. 
D)  is foreseen by policy makers but unforeseen by the public. 
A)  catches most people by surprise. 
B)  is foreseen by most economic participants. 
C)  is anticipated by economists but unforeseen by other people. 
D)  is foreseen by policy makers but unforeseen by the public.

Question 8

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply?

Accepted Answer

A)  an increase in real GDP 
B)  an increase in the general level of prices 
C)  an increase in the actual rate of unemployment 
D)  an increase in the natural rate of unemployment 
A)  an increase in real GDP 
B)  an increase in the general level of prices 
C)  an increase in the actual rate of unemployment 
D)  an increase in the natural rate of unemployment

Question 9

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

Accepted Answer

A)  a decrease in inflation 
B)  a decrease in unemployment 
C)  an increase in the general level of prices 
D)  an increase in the natural rate of unemployment 
A)  a decrease in inflation 
B)  a decrease in unemployment 
C)  an increase in the general level of prices 
D)  an increase in the natural rate of unemployment

Question 10

A recession abroad would

Accepted Answer

A)  increase U.S. net exports and increase aggregate demand. 
B)  increase U.S. net exports and increase aggregate supply. 
C)  reduce U.S. net exports and reduce aggregate demand. 
D)  reduce U.S. net exports and increase aggregate demand. 
A)  increase U.S. net exports and increase aggregate demand. 
B)  increase U.S. net exports and increase aggregate supply. 
C)  reduce U.S. net exports and reduce aggregate demand. 
D)  reduce U.S. net exports and increase aggregate demand.

Question 11

Use the figure below to answer the following question(s).
Figure 10-17
  
-Suppose an economy is currently operating at output Y₁ associated with AD₁ and SRAS₁, shown in Figure 10-17. Initially, the output of this economy is

Accepted Answer

A)  above its potential, and the rate of unemployment is greater than the natural rate. 
B)  below its potential, and the rate of unemployment is greater than the natural rate. 
C)  above its potential, and the rate of unemployment is less than the natural rate. 
D)  below its potential, and the rate of unemployment is less than the natural rate. 
A)  above its potential, and the rate of unemployment is greater than the natural rate. 
B)  below its potential, and the rate of unemployment is greater than the natural rate. 
C)  above its potential, and the rate of unemployment is less than the natural rate. 
D)  below its potential, and the rate of unemployment is less than the natural rate.

Question 12

When an economy is temporarily operating at an output that is beyond its full-employment rate,

Accepted Answer

A)  excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment. 
B)  excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment. 
C)  lower wages and prices will quickly restore full employment. 
D)  only restrictive fiscal policy will direct the economy back to full employment. 
A)  excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment. 
B)  excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment. 
C)  lower wages and prices will quickly restore full employment. 
D)  only restrictive fiscal policy will direct the economy back to full employment.

Question 13

Which of the following would reduce the ability of the self-correcting mechanism to direct an economy out of a recession quickly?

Accepted Answer

A)  a decrease in the real rate of interest 
B)  resource prices that are inflexible in a downward direction 
C)  an increase in aggregate demand 
D)  a low level of savings 
A)  a decrease in the real rate of interest 
B)  resource prices that are inflexible in a downward direction 
C)  an increase in aggregate demand 
D)  a low level of savings

Question 14

Construct a graph of the aggregate goods and services market for an economy experiencing the following.
a.a recession
b.full employment
c.an economic boom

Accepted Answer

a.An economy experiencing a recession is

Question 15

Which of the following is most likely to accompany an unanticipated increase in short-run aggregate supply?

Accepted Answer

A)  an increase in real GDP 
B)  a decrease in real GDP 
C)  an increase in the price level 
D)  an increase in the unemployment rate 
A)  an increase in real GDP 
B)  a decrease in real GDP 
C)  an increase in the price level 
D)  an increase in the unemployment rate

Question 16

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 17

Use the figure below to answer the following question(s).
Figure 10-9
  
-If the economy were operating at point a in Figure 10-9, resource prices would tend to

Accepted Answer

A)  decrease and move the economy toward point c. 
B)  decrease and move the economy toward point b. 
C)  increase and move the economy toward point c. 
D)  increase and move the economy toward point b. 
A)  decrease and move the economy toward point c. 
B)  decrease and move the economy toward point b. 
C)  increase and move the economy toward point c. 
D)  increase and move the economy toward point b.

Question 18

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 forcef. an increase in the expected inflation rate

Accepted Answer

a.The stock market crash would decrease

Question 19

What would be the effect of a decrease in the real interest rate and an increase in the expected inflation rate?

Accepted Answer

A)  Both changes would decrease aggregate demand. 
B)  Both changes would increase aggregate demand. 
C)  Both changes would increase short-run aggregate supply. 
D)  Both changes would increase long-run aggregate supply. 
A)  Both changes would decrease aggregate demand. 
B)  Both changes would increase aggregate demand. 
C)  Both changes would increase short-run aggregate supply. 
D)  Both changes would increase long-run aggregate supply.

Question 20

Other things constant, an increase in the real interest rate will

Accepted Answer

A)  cause consumers to reduce their purchases of durable items like appliances and automobiles. 
B)  induce businesses to increase their level of investment. 
C)  make borrowing money more attractive. 
D)  increase the natural rate of unemployment. 
A)  cause consumers to reduce their purchases of durable items like appliances and automobiles. 
B)  induce businesses to increase their level of investment. 
C)  make borrowing money more attractive. 
D)  increase the natural rate of unemployment.

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

When an economy is in a recession,

The short-run effect of a sudden increase in stock prices will be

If the general level of prices is lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources, which of the following is most likely to occur?

Other things constant, a reduction in the real interest rate will

If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?

Use the figure below to answer the following question(s). Figure 10-9 -The output of the economy depicted in Figure 10-9 is

An anticipated change is an economic occurrence that

Which of the following will most likely accompany an unanticipated increase in short-run aggregate supply?

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

A recession abroad would

Use the figure below to answer the following question(s). Figure 10-17 -Suppose an economy is currently operating at output Y₁ associated with AD₁ and SRAS₁, shown in Figure 10-17. Initially, the output of this economy is

When an economy is temporarily operating at an output that is beyond its full-employment rate,

Which of the following would reduce the ability of the self-correcting mechanism to direct an economy out of a recession quickly?

Construct a graph of the aggregate goods and services market for an economy experiencing the following. a.a recession b.full employment c.an economic boom

Which of the following is most likely to accompany an unanticipated increase in short-run aggregate supply?

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),

Use the figure below to answer the following question(s). Figure 10-9 -If the economy were operating at point a in Figure 10-9, resource prices would tend to

What would be the effect of a decrease in the real interest rate and an increase in the expected inflation rate?

Other things constant, an increase in the real interest rate will

The Economic Approach

A : Some Tools of the Economist

B : Some Tools of the Economist

A : Supply, Demand, and the Market Process

B : Supply, Demand, and the Market Process

A : Supply and Demand: Applications and Extensions

B : Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

A : Taking the Nations Economic Pulse

B : Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

A : an Introduction to Basic Macroeconomic Markets

B : an Introduction to Basic Macroeconomic Markets

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, Incentives, and Secondary Effects

A : Money and the Banking System

B : Money 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

A : Costs and the Supply of Goods

B : Costs and the Supply of Goods

A : Price Takers and the Competitive Process

B : Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A : Price-Searcher Markets With High Entry Barriers

B : Price-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

Special Topic 1 : Government Spending and Taxation

Special Topic 2 : The Economics of Social Security

Special Topic 3 : The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity

Special Topic 4 : Great Debates in Economics: Keynes Versus Hayek

Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future

Special Topic 6 : Lessons from the Great Depression

Special Topic 7 : Lessons from Japan and Canada

Special Topic 8 : The Federal Budget and the National Debt

Special Topic 9 : The Economics of Healthcare

Special Topic 10 : Education: Problems and Performance

Special Topic 11 : Earnings Differences Between Men and Women

Special Topic 12 : Do Labor Unions Increase the Wages of Workers?

Special Topic 13 : The Question of Resource Exhaustion

Special Topic 14 : Difficult Environmental Cases and the Role of Government

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