Question 1

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.

Question 2

Which of the following is most likely to accompany an unanticipated reduction in aggregate demand?

Accepted Answer

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

Question 3

Figure 10-12
  
-In Figure 10-12, which of the following would most likely cause the movement from point E₁ to point e₂ for the United States?

Accepted Answer

A)  a severe drought in agricultural areas 
B)  a major technological improvement 
C)  business and consumer pessimism about the future direction of the economy 
D)  a decrease in the expected inflation rate 
A)  a severe drought in agricultural areas 
B)  a major technological improvement 
C)  business and consumer pessimism about the future direction of the economy 
D)  a decrease in the expected inflation rate

Question 4

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. Good weather allows agricultural output to double.

Accepted Answer

A)  The aggregate demand curve would shift to the right. 
B)  The aggregate demand curve would shift to the left. 
C)  The short-run aggregate supply curve would shift to the right. 
D)  The short-run aggregate supply curve would shift to the left. 
A)  The aggregate demand curve would shift to the right. 
B)  The aggregate demand curve would shift to the left. 
C)  The short-run aggregate supply curve would shift to the right. 
D)  The short-run aggregate supply curve would shift to the left.

Question 5

Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the long run?

Accepted Answer

A)  An unanticipated increase in aggregate demand. 
B)  An anticipated increase in aggregate demand. 
C)  An increase in long run aggregate supply (LRAS). 
D)  An increase in wage rates 
A)  An unanticipated increase in aggregate demand. 
B)  An anticipated increase in aggregate demand. 
C)  An increase in long run aggregate supply (LRAS). 
D)  An increase in wage rates

Question 6

Which of the following will most likely increase the economy's long-run aggregate supply?

Accepted Answer

A)  advances in technology 
B)  unfavorable weather conditions in agricultural areas 
C)  an increase in the expected inflation rate 
D)  a low rate of investment 
A)  advances in technology 
B)  unfavorable weather conditions in agricultural areas 
C)  an increase in the expected inflation rate 
D)  a low rate of investment

Question 7

Which of the following will most likely occur in the short run if long-run equilibrium is disturbed by an unanticipated decrease in aggregate demand?

Accepted Answer

A)  a decrease in output and a higher price level 
B)  an increase in output and a higher price level 
C)  a decrease in output and a lower price level 
D)  an increase in output, while prices remain unchanged 
A)  a decrease in output and a higher price level 
B)  an increase in output and a higher price level 
C)  a decrease in output and a lower price level 
D)  an increase in output, while prices remain unchanged

Question 8

Which of the following factors would increase aggregate demand in the goods and services market?

Accepted Answer

A)  an decrease in stock prices 
B)  an increase in the real interest rate 
C)  a decrease in real incomes abroad 
D)  increased optimism on the part of consumers and businesses 
A)  an decrease in stock prices 
B)  an increase in the real interest rate 
C)  a decrease in real incomes abroad 
D)  increased optimism on the part of consumers and businesses

Question 9

The expected price level is important because

Accepted Answer

A)  it is the equilibrium price level in the short run 
B)  it determines the actual price level in the short run 
C)  it determines the actual price level in the long run 
D)  firms and resource owners make long-term agreements based on the expected price level 
A)  it is the equilibrium price level in the short run 
B)  it determines the actual price level in the short run 
C)  it determines the actual price level in the long run 
D)  firms and resource owners make long-term agreements based on the expected price level

Question 10

Figure 10-18
  
-Given the shift of the aggregate demand curve from AD₁ to AD₂ in Figure 10-18, the real GDP and price level (CPI) in long-run equilibrium will be

Accepted Answer

A)  $10 billion and 200. 
B)  $4 billion and 150. 
C)  $10 billion and 150. 
D)  $10 billion and 100. 
A)  $10 billion and 200. 
B)  $4 billion and 150. 
C)  $10 billion and 150. 
D)  $10 billion and 100.

Question 11

Use the figure below to answer the following question(s).
Figure 10-6
  
-Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the economy's current output and price level are

Accepted Answer

A)  output Y₁ and price level P₂. 
B)  output Y₂ and price level P₁. 
C)  output Y₁ and price level P₃. 
D)  output Y₂ and price level P₃. 
A)  output Y₁ and price level P₂. 
B)  output Y₂ and price level P₁. 
C)  output Y₁ and price level P₃. 
D)  output Y₂ and price level P₃.

Question 12

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)  weak demand for investment funds will cause the real interest rate to decline. 
D)  the unemployment rate will be less than 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)  weak demand for investment funds will cause the real interest rate to decline. 
D)  the unemployment rate will be less than its natural rate.

Question 13

Starting from long-run equilibrium at point A, which of the following points would occur immediately following an unanticipated decrease in stock prices?

Accepted Answer

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

Question 14

Use the figure below to answer the following question(s).
Figure 10-16
  
-With the passage of time, which of the following will help direct this economy in Figure 10-16 toward its potential long-run rate of output?

Accepted Answer

A)  lower interest rates that will stimulate AD and lower resource prices that will increase SRAS 
B)  higher interest rates that will reduce aggregate demand and higher resource prices that will reduce SRAS 
C)  lower interest rates and higher resource prices, both of which will stimulate aggregate demand 
D)  higher interest rates that will reduce SRAS and lower resource prices that will stimulate aggregate demand 
A)  lower interest rates that will stimulate AD and lower resource prices that will increase SRAS 
B)  higher interest rates that will reduce aggregate demand and higher resource prices that will reduce SRAS 
C)  lower interest rates and higher resource prices, both of which will stimulate aggregate demand 
D)  higher interest rates that will reduce SRAS and lower resource prices that will stimulate aggregate demand

Question 15

With regard to the business cycle, most modern economists believe that

Accepted Answer

A)  once a recession starts, market forces are incapable of preventing the economy from plunging deeper and deeper into a depression. 
B)  market economies will experience lengthy periods of recession pretty much regardless of what policy makers do. 
C)  the economy's self-corrective mechanism will quickly restore full employment regardless of the choices made by policy makers. 
D)  lower real interest rates and reductions in real resource prices will help direct an economy out of recession. 
A)  once a recession starts, market forces are incapable of preventing the economy from plunging deeper and deeper into a depression. 
B)  market economies will experience lengthy periods of recession pretty much regardless of what policy makers do. 
C)  the economy's self-corrective mechanism will quickly restore full employment regardless of the choices made by policy makers. 
D)  lower real interest rates and reductions in real resource prices will help direct an economy out of recession.

Question 16

Suppose this year's inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true?

Accepted Answer

A)  real GDP will increase 
B)  the unemployment rate will probably rise 
C)  potential output will remain the same 
D)  the short-run aggregate supply curve will shift to the right 
E)  there will be a leftward movement along a given short-run aggregate supply curve 
A)  real GDP will increase 
B)  the unemployment rate will probably rise 
C)  potential output will remain the same 
D)  the short-run aggregate supply curve will shift to the right 
E)  there will be a leftward movement along a given short-run aggregate supply curve

Question 17

Use the figure below to answer the following question(s).
Figure 10-2
  
-At which point in Figure 10-2 is the economy at long-run equilibrium?

Accepted Answer

A)  J 
B)  F 
C)  G 
D)  H 
A)  J 
B)  F 
C)  G 
D)  H

Question 18

Use the figure below to answer the following question(s).
Figure 10-1
  
-At which point in Figure 10-1 is the economy experiencing an economic recession?

Accepted Answer

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

Question 19

During 2003-2007, the price of crude oil increased substantially on the world market. Other things constant, how will an unanticipated increase in oil prices influence the general level of prices and real output of oil-importing nations such as the United States and Japan?

Accepted Answer

A)  Both real output and the general level of prices will decrease. 
B)  Both real output and the general level of prices will increase. 
C)  Real output will increase, and the general level of prices will decrease. 
D)  Real output will decrease, and the general level of prices will increase. 
A)  Both real output and the general level of prices will decrease. 
B)  Both real output and the general level of prices will increase. 
C)  Real output will increase, and the general level of prices will decrease. 
D)  Real output will decrease, and the general level of prices will increase.

Question 20

Figure 10-18
  
-Beginning from a point of short-run equilibrium at point E₂ in Figure 10-18, the economy's movement to a new position of long-run equilibrium from that point would best be described as

Accepted Answer

A)  a movement along the AD₂ curve with a shift in the SRAS₁ curve to SRAS₂. 
B)  a movement along the SRAS₂ curve with a shift in the AD₂ curve. 
C)  a shift in the LRAS curve to an intersection at E₃. 
D)  no shift of any kind. 
A)  a movement along the AD₂ curve with a shift in the SRAS₁ curve to SRAS₂. 
B)  a movement along the SRAS₂ curve with a shift in the AD₂ curve. 
C)  a shift in the LRAS curve to an intersection at E₃. 
D)  no shift of any kind.

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

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 is most likely to accompany an unanticipated reduction in aggregate demand?

Figure 10-12 -In Figure 10-12, which of the following would most likely cause the movement from point E₁ to point e₂ for the United States?

Which is most likely to cause a temporary spurt in the growth of GDP that cannot be maintained in the long run?

Which of the following will most likely increase the economy's long-run aggregate supply?

Which of the following will most likely occur in the short run if long-run equilibrium is disturbed by an unanticipated decrease in aggregate demand?

Which of the following factors would increase aggregate demand in the goods and services market?

The expected price level is important because

Figure 10-18 -Given the shift of the aggregate demand curve from AD₁ to AD₂ in Figure 10-18, the real GDP and price level (CPI) in long-run equilibrium will be

Use the figure below to answer the following question(s). Figure 10-6 -Given the aggregate demand and aggregate supply curves for the economy depicted in Figure 10-6, the economy's current output and price level are

When an economy is in a recession,

Starting from long-run equilibrium at point A, which of the following points would occur immediately following an unanticipated decrease in stock prices?

Use the figure below to answer the following question(s). Figure 10-16 -With the passage of time, which of the following will help direct this economy in Figure 10-16 toward its potential long-run rate of output?

With regard to the business cycle, most modern economists believe that

Suppose this year's inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true?

Use the figure below to answer the following question(s). Figure 10-2 -At which point in Figure 10-2 is the economy at long-run equilibrium?

Use the figure below to answer the following question(s). Figure 10-1 -At which point in Figure 10-1 is the economy experiencing an economic recession?

During 2003-2007, the price of crude oil increased substantially on the world market. Other things constant, how will an unanticipated increase in oil prices influence the general level of prices and real output of oil-importing nations such as the United States and Japan?

Figure 10-18 -Beginning from a point of short-run equilibrium at point E₂ in Figure 10-18, the economy's movement to a new position of long-run equilibrium from that point would best be described as

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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