Question 1

A decrease in aggregate supply will cause the price level to:

Accepted Answer

A)  rise and GDP to fall. 
B)  rise and GDP to rise. 
C)  rise and the unemployment rate to fall. 
D)  fall and GDP to rise. 
E)  fall and the unemployment rate to rise. 
A)  rise and GDP to fall. 
B)  rise and GDP to rise. 
C)  rise and the unemployment rate to fall. 
D)  fall and GDP to rise. 
E)  fall and the unemployment rate to rise.

Question 2

The pre-Keynesian or classical economic theory predicted that in the long-run the economy would experience:

Accepted Answer

A)  long periods of high unemployment. 
B)  rising rates of inflation. 
C)  only temporary periods of high unemployment. 
D)  idle factors of production. 
A)  long periods of high unemployment. 
B)  rising rates of inflation. 
C)  only temporary periods of high unemployment. 
D)  idle factors of production.

Question 3

The net exports effect is the direct relationship between net exports and the price level of an economy.

Accepted Answer

A) True 
 B)False

Question 4

In the aggregate demand and supply model,the:

Accepted Answer

A)  vertical axis measures the average price level. 
B)  horizontal axis measures real GDP. 
C)  aggregate supply curve is vertical at full-employment real GDP. 
D)  All of the above. 
A)  vertical axis measures the average price level. 
B)  horizontal axis measures real GDP. 
C)  aggregate supply curve is vertical at full-employment real GDP. 
D)  All of the above.

Question 5

Exhibit 14-8 Aggregate demand and supply
  
-In Exhibit 14-8,if aggregate demand shifts from AD₄ to AD₅,real GDP will:

Accepted Answer

A)  not change, and the price level will rise from 120 to 170. 
B)  increase from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C)  not change, and the price level will rise from 140 to 170. 
D)  increase from $4.0 to $7.0, and the price level will not change. 
E)  not change, and the price level will rise from 100 to 170. 
A)  not change, and the price level will rise from 120 to 170. 
B)  increase from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C)  not change, and the price level will rise from 140 to 170. 
D)  increase from $4.0 to $7.0, and the price level will not change. 
E)  not change, and the price level will rise from 100 to 170.

Question 6

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

Accepted Answer

A)  The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B)  The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C)  The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D)  None of the above. 
A)  The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power. 
B)  The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more. 
C)  The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services. 
D)  None of the above.

Question 7

A leftward shift in the aggregate supply curve along a fixed aggregate demand curve will cause cost-push inflation.

Accepted Answer

A) True 
 B)False

Question 8

Assuming prices and wages are fully flexible,the aggregate supply curve will be:

Accepted Answer

A)  upward sloping, but not vertical. 
B)  vertical. 
C)  horizontal. 
D)  downward sloping. 
A)  upward sloping, but not vertical. 
B)  vertical. 
C)  horizontal. 
D)  downward sloping.

Question 9

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

Accepted Answer

A)  cost-push inflation. 
B)  supply shock inflation. 
C)  demand shock inflation. 
D)  demand-pull inflation. 
A)  cost-push inflation. 
B)  supply shock inflation. 
C)  demand shock inflation. 
D)  demand-pull inflation.

Question 10

In the vertical segment of the aggregate supply curve,

Accepted Answer

A)  different levels of GDP correspond with high unemployment. 
B)  competition among producers for already-employed resources can succeed only in lowering the economy's price level. 
C)  full employment is achieved. 
D)  producers are able to hire more workers at lower wages. 
E)  increases in GDP are due solely to production gains. 
A)  different levels of GDP correspond with high unemployment. 
B)  competition among producers for already-employed resources can succeed only in lowering the economy's price level. 
C)  full employment is achieved. 
D)  producers are able to hire more workers at lower wages. 
E)  increases in GDP are due solely to production gains.

Question 11

The negative slope of the aggregate demand curve is caused by:

Accepted Answer

A)  the real balances effect, the interest rate effect, and the price level effect. 
B)  the real balances effect, the money supply effect, and the net exports effect. 
C)  the interest rate effect, the net exports effect, and the real GDP effect. 
D)  the real balances effect, the interest rate effect, and the net exports effect. 
E)  the real balances effect, the interest rate effect, and the net export effect. 
A)  the real balances effect, the interest rate effect, and the price level effect. 
B)  the real balances effect, the money supply effect, and the net exports effect. 
C)  the interest rate effect, the net exports effect, and the real GDP effect. 
D)  the real balances effect, the interest rate effect, and the net exports effect. 
E)  the real balances effect, the interest rate effect, and the net export effect.

Question 12

In the horizontal segment of the aggregate supply curve,when GDP:

Accepted Answer

A)  increases, the price level rises. 
B)  decreases, the price level falls. 
C)  increases, the price level does not change. 
D)  increases, the price level falls. 
E)  increases, the price level first rises and then falls. 
A)  increases, the price level rises. 
B)  decreases, the price level falls. 
C)  increases, the price level does not change. 
D)  increases, the price level falls. 
E)  increases, the price level first rises and then falls.

Question 13

Exhibit 14-7 Aggregate supply and demand curves
  
-In Exhibit 14-7,the aggregate demand and supply curves reflect an economy in which:

Accepted Answer

A) full employment is at $1,000 billion GDP. 
B) excess aggregate supply is created when there is a shift from AD₁ to AD₂. 
C) excess aggregate demand forces prices up to P = 120. 
D) excess aggregate demand causes prices to stabilize at P = 110. 
E) a new equilibrium is found at point b. 
A) full employment is at $1,000 billion GDP. 
B) excess aggregate supply is created when there is a shift from AD₁ to AD₂. 
C) excess aggregate demand forces prices up to P = 120. 
D) excess aggregate demand causes prices to stabilize at P = 110. 
E) a new equilibrium is found at point b.

Question 14

For an economy,aggregate demand equals:

Accepted Answer

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

Question 15

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 16

A cut in government spending,a decrease in income abroad,an increase in taxes,or an expectation that future consumer income will fall will all cause aggregate:

Accepted Answer

A)  demand to shift outward. 
B)  demand to shift inward. 
C)  supply to shift outward. 
D)  supply to shift inward. 
E)  supply and aggregate demand to both shift equally inward. 
A)  demand to shift outward. 
B)  demand to shift inward. 
C)  supply to shift outward. 
D)  supply to shift inward. 
E)  supply and aggregate demand to both shift equally inward.

Question 17

Stagflation is a period of time when the economy is experiencing:

Accepted Answer

A)  inflation and low unemployment. 
B)  high unemployment and low levels of inflation at the same time. 
C)  high inflation and high unemployment at the same time. 
D)  low inflation and low unemployment at the same time. 
A)  inflation and low unemployment. 
B)  high unemployment and low levels of inflation at the same time. 
C)  high inflation and high unemployment at the same time. 
D)  low inflation and low unemployment at the same time.

Question 18

In the intermediate range of the aggregate supply curve,higher aggregate demand will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  real GDP without raising the price level. 
C)  the price level without affecting real GDP. 
D)  the price level but reduce real GDP. 
A)  both the price level and real GDP. 
B)  real GDP without raising the price level. 
C)  the price level without affecting real GDP. 
D)  the price level but reduce real GDP.

Question 19

Exhibit 14-4 Aggregate supply and demand curves
  
-In Exhibit 14-4,point E₂ represents:

Accepted Answer

A)  real GDP above full-employment GDP. 
B)  real GDP that equals full-employment GDP. 
C)  a depression. 
D)  real GDP below full-employment GDP. 
A)  real GDP above full-employment GDP. 
B)  real GDP that equals full-employment GDP. 
C)  a depression. 
D)  real GDP below full-employment GDP.

Question 20

The quantity of real GDP rises with the price level,ceteris paribus.

Accepted Answer

A) True 
 B)False

Exam 14: Aggregate Demand and Supply

A decrease in aggregate supply will cause the price level to:

The pre-Keynesian or classical economic theory predicted that in the long-run the economy would experience:

The net exports effect is the direct relationship between net exports and the price level of an economy.

In the aggregate demand and supply model,the:

Exhibit 14-8 Aggregate demand and supply -In Exhibit 14-8,if aggregate demand shifts from AD₄ to AD₅,real GDP will:

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

A leftward shift in the aggregate supply curve along a fixed aggregate demand curve will cause cost-push inflation.

Assuming prices and wages are fully flexible,the aggregate supply curve will be:

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

In the vertical segment of the aggregate supply curve,

The negative slope of the aggregate demand curve is caused by:

In the horizontal segment of the aggregate supply curve,when GDP:

Exhibit 14-7 Aggregate supply and demand curves -In Exhibit 14-7,the aggregate demand and supply curves reflect an economy in which:

For an economy,aggregate demand equals:

The aggregate supply curve indicates the:

A cut in government spending,a decrease in income abroad,an increase in taxes,or an expectation that future consumer income will fall will all cause aggregate:

Stagflation is a period of time when the economy is experiencing:

In the intermediate range of the aggregate supply curve,higher aggregate demand will increase:

Exhibit 14-4 Aggregate supply and demand curves -In Exhibit 14-4,point E₂ represents:

The quantity of real GDP rises with the price level,ceteris paribus.

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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