Question 1

When OPEC caused the price of oil to rise in the early 1970s,the:

Accepted Answer

A)  aggregate supply curve shifted to the right. 
B)  aggregate supply curve shifted to the left. 
C)  the aggregate demand curve shifted to the right. 
D)  aggregate demand curve shifted to the left. 
E)  price level in the economy fell. 
A)  aggregate supply curve shifted to the right. 
B)  aggregate supply curve shifted to the left. 
C)  the aggregate demand curve shifted to the right. 
D)  aggregate demand curve shifted to the left. 
E)  price level in the economy fell.

Question 2

When prices rise,consumers and businesses hold larger money balances.This reduces the supply of loanable funds,increases the interest rate,and discourages both consumption and investment.This process is called the:

Accepted Answer

A)  interest-rate effect. 
B)  real balance effect. 
C)  investment effect. 
D)  disinvestment effect. 
A)  interest-rate effect. 
B)  real balance effect. 
C)  investment effect. 
D)  disinvestment effect.

Question 3

The classical approach to a downturn in the business cycle was for the government to do nothing.

Accepted Answer

A) True 
 B)False

Question 4

An increase in aggregate supply will cause the price level to:

Accepted Answer

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

Question 5

Cost-push inflation is caused by a leftward shift of the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 6

The aggregate supply curve:

Accepted Answer

A)  shows the level of real GDP produced in the economy at different possible price levels during a period of time. 
B)  is horizontal in the Keynesian range. 
C)  is vertical in the classical range. 
D)  all of the above. 
A)  shows the level of real GDP produced in the economy at different possible price levels during a period of time. 
B)  is horizontal in the Keynesian range. 
C)  is vertical in the classical range. 
D)  all of the above.

Question 7

The aggregate demand curve slopes downward indicating that:

Accepted Answer

A)  an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B)  an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C)  a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D)  consumers substitute between domestic-made and foreign-made goods as their relative prices change. 
A)  an increase in the general price level will reduce the aggregate quantity of goods and services demanded. 
B)  an increase in the general price level will increase the aggregate quantity of goods and services demanded. 
C)  a change in the interest rate will alter the aggregate quantity of goods and services demanded. 
D)  consumers substitute between domestic-made and foreign-made goods as their relative prices change.

Question 8

Other things constant,an increase in resource prices will:

Accepted Answer

A)  increase aggregate demand. 
B)  decrease aggregate demand. 
C)  decrease aggregate supply. 
D)  increase aggregate supply. 
A)  increase aggregate demand. 
B)  decrease aggregate demand. 
C)  decrease aggregate supply. 
D)  increase aggregate supply.

Question 9

Cost-push inflation occurs when the:

Accepted Answer

A)  aggregate demand curve shifts leftward while the aggregate supply curve is fixed. 
B)  aggregate supply curve shifts leftward while the aggregate demand curve is fixed. 
C)  aggregate demand curve shifts rightward while the aggregate supply curve is fixed. 
D)  aggregate supply curve shifts rightward. 
A)  aggregate demand curve shifts leftward while the aggregate supply curve is fixed. 
B)  aggregate supply curve shifts leftward while the aggregate demand curve is fixed. 
C)  aggregate demand curve shifts rightward while the aggregate supply curve is fixed. 
D)  aggregate supply curve shifts rightward.

Question 10

____ inflation can be explained by a ____ shift in the aggregate ____ curve.

Accepted Answer

A)  Demand-pull, leftward, demand 
B)  Cost-push, rightward, supply 
C)  Demand-pull, leftward, supply, 
D)  Cost-push, rightward, supply. 
A)  Demand-pull, leftward, demand 
B)  Cost-push, rightward, supply 
C)  Demand-pull, leftward, supply, 
D)  Cost-push, rightward, supply.

Question 11

A change in which of the following would shift the aggregate demand curve?

Accepted Answer

A)  Consumption (
C)  
B)  Investment (I) 
C)  Government spending (G) 
D)  Net Exports (NX) 
E)  All of the above 
A)  Consumption (
C)  
B)  Investment (I) 
C)  Government spending (G) 
D)  Net Exports (NX) 
E)  All of the above

Question 12

The net exports effect exists because a:

Accepted Answer

A)  higher price level will reduce interest rates and stimulate foreign investment. 
B)  lower price level will make domestically produced exports less expensive relative to foreign goods. 
C)  higher price level will reduce the purchasing power of money. 
D)  lower price level will encourage Americans to import more foreign goods. 
A)  higher price level will reduce interest rates and stimulate foreign investment. 
B)  lower price level will make domestically produced exports less expensive relative to foreign goods. 
C)  higher price level will reduce the purchasing power of money. 
D)  lower price level will encourage Americans to import more foreign goods.

Question 13

Which of the following will most likely increase aggregate demand?

Accepted Answer

A)  A decrease in stock market prices. 
B)  An increase in business investment spending. 
C)  A decrease in the expected inflation rate. 
D)  A decrease in real GDP. 
A)  A decrease in stock market prices. 
B)  An increase in business investment spending. 
C)  A decrease in the expected inflation rate. 
D)  A decrease in real GDP.

Question 14

Suppose workers become pessimistic about their future employment,which causes them to save more and spend less.If the economy is on the intermediate range of the aggregate supply curve,then:

Accepted Answer

A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  both real GDP and the price level will rise. 
A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  both real GDP and the price level will rise.

Question 15

Which of the following characterizes the classical view of the economy?

Accepted Answer

A)  The economy is inherently unstable. 
B)  Prices and wages are not flexible. 
C)  The economy will "self-adjust" to full employment. 
D)  None of the above. 
A)  The economy is inherently unstable. 
B)  Prices and wages are not flexible. 
C)  The economy will "self-adjust" to full employment. 
D)  None of the above.

Question 16

Which of the following correctly describes the interest-rate effect?

Accepted Answer

A)  If the price level decreases, consumer purchasing power decreases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
B)  If the price level decreases, consumer purchasing power increases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
C)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
D)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases. 
A)  If the price level decreases, consumer purchasing power decreases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
B)  If the price level decreases, consumer purchasing power increases, the demand for credit rises, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
C)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates rise, debt-financed borrowing decreases, and real GDP demanded falls. 
D)  If the price level decreases, consumer purchasing power increases, the demand for credit falls, interest rates fall, debt-financed borrowing increases, and real GDP demanded increases.

Question 17

Cost-push inflation is caused by supply shocks like higher oil prices and poor weather conditions.

Accepted Answer

A) True 
 B)False

Question 18

At low levels of employment,the Keynesian aggregate supply curve:

Accepted Answer

A)  tilts downward to the right. 
B)  tilts upward to the right. 
C)  is vertical. 
D)  shows a constant price level. 
E)  shows a rising price level. 
A)  tilts downward to the right. 
B)  tilts upward to the right. 
C)  is vertical. 
D)  shows a constant price level. 
E)  shows a rising price level.

Question 19

The Keynesian view is that the aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 20

Stagflation means a simultaneous decrease in the unemployment and inflation rates.

Accepted Answer

A) True 
 B)False

Exam 14: Aggregate Demand and Supply

When OPEC caused the price of oil to rise in the early 1970s,the:

When prices rise,consumers and businesses hold larger money balances.This reduces the supply of loanable funds,increases the interest rate,and discourages both consumption and investment.This process is called the:

The classical approach to a downturn in the business cycle was for the government to do nothing.

An increase in aggregate supply will cause the price level to:

Cost-push inflation is caused by a leftward shift of the aggregate demand curve.

The aggregate supply curve:

The aggregate demand curve slopes downward indicating that:

Other things constant,an increase in resource prices will:

Cost-push inflation occurs when the:

____ inflation can be explained by a ____ shift in the aggregate ____ curve.

A change in which of the following would shift the aggregate demand curve?

The net exports effect exists because a:

Which of the following will most likely increase aggregate demand?

Suppose workers become pessimistic about their future employment,which causes them to save more and spend less.If the economy is on the intermediate range of the aggregate supply curve,then:

Which of the following characterizes the classical view of the economy?

Which of the following correctly describes the interest-rate effect?

Cost-push inflation is caused by supply shocks like higher oil prices and poor weather conditions.

At low levels of employment,the Keynesian aggregate supply curve:

The Keynesian view is that the aggregate supply curve is vertical.

Stagflation means a simultaneous decrease in the unemployment and inflation rates.

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

Filters

inflation can be explained by a shift in the aggregate curve.