Question 1

Which of the following best describes the "interest rate effect"?

Accepted Answer

A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending. 
A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 2

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except

Accepted Answer

A)  unions are successful in pushing up wages. 
B)  firms are often slow to adjust wages. 
C)  contracts make prices and wages sticky. 
D)  menu costs make some prices sticky. 
A)  unions are successful in pushing up wages. 
B)  firms are often slow to adjust wages. 
C)  contracts make prices and wages sticky. 
D)  menu costs make some prices sticky.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If the U.S.dollar increases in value relative to other currencies,how does this 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 5

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase 
A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase

Question 6

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result

Accepted Answer

A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%. 
A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%.

Question 7

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy.As a result

Accepted Answer

A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  the economy will move up along the long-run aggregate supply curve. 
D)  the economy will move down along the long-run aggregate supply curve. 
A)  the long-run aggregate supply curve will shift to the right. 
B)  the long-run aggregate supply curve will shift to the left. 
C)  the economy will move up along the long-run aggregate supply curve. 
D)  the economy will move down along the long-run aggregate supply curve.

Question 8

Figure 15-3
  
-Refer to Figure 15-3.Suppose the economy is at point C.If investment spending decreases 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 9

Figure 15-2
  
-Refer to Figure 15-2.Ceteris paribus,a decrease in the expected future price level would be represented by a movement from

Accepted Answer

A)  SRAS₁ to SRAS₂. 
B)  SRAS₂ to SRAS₁. 
C)  point A to point B. 
D)  point B to point A. 
A)  SRAS₁ to SRAS₂. 
B)  SRAS₂ to SRAS₁. 
C)  point A to point B. 
D)  point B to point A.

Question 10

As the recession persisted into 2009,the unemployment rate in the United States rose to ________,the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Accepted Answer

A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent 
A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent

Question 11

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

Accepted Answer

A)  Output will decline. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  The aggregate demand curve will shift to the left. 
A)  Output will decline. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  The aggregate demand curve will shift to the left.

Question 12

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

Accepted Answer

A)  the equity in one's home 
B)  1,000 shares of Microsoft stock 
C)  a credit card balance 
D)  the balance in your checking account 
A)  the equity in one's home 
B)  1,000 shares of Microsoft stock 
C)  a credit card balance 
D)  the balance in your checking account

Question 13

Which of the following is considered a negative supply shock?

Accepted Answer

A)  increasing immigration in the economy causes the labor supply to rise 
B)  an improvement in technology 
C)  an increase in unemployment 
D)  an unexpected decrease in the refining capacity for oil 
A)  increasing immigration in the economy causes the labor supply to rise 
B)  an improvement in technology 
C)  an increase in unemployment 
D)  an unexpected decrease in the refining capacity for oil

Question 14

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

A)  Output will decrease. 
B)  Prices will increase. 
C)  Unemployment will rise. 
D)  Short-run aggregate supply will shift to the right. 
A)  Output will decrease. 
B)  Prices will increase. 
C)  Unemployment will rise. 
D)  Short-run aggregate supply will shift to the right.

Question 15

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

Accepted Answer

A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  AD did not shift and SRAS shifted to the left. 
A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  AD did not shift and SRAS shifted to the left.

Question 16

Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast.As a result there was an unexpected decline in oil and natural gas supplies in 2005.Suppose that this caused an increase in the price level and a decline in real GDP in 2006.Also assume that potential real GDP continued to grow due to other factors.You can assume the aggregate demand curve did not change.Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model.

Accepted Answer

@#IMG-DLM& The economy began at the point (Y₁,P₁)o

Question 17

One factor which brought on the recession of 2007-2009 was the end of the housing bubble.

Accepted Answer

A) True 
 B)False

Question 18

Deflation will

Accepted Answer

A)  increase aggregate demand. 
B)  increase the quantity of real GDP demanded. 
C)  decrease aggregate demand. 
D)  decrease the quantity of real GDP demanded. 
A)  increase aggregate demand. 
B)  increase the quantity of real GDP demanded. 
C)  decrease aggregate demand. 
D)  decrease the quantity of real GDP demanded.

Question 19

At a short-run macroeconomic equilibrium,real GDP is always equal to potential GDP.

Accepted Answer

A) True 
 B)False

Question 20

The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation.What did this technological change do the short-run supply curve?

Accepted Answer

A)  It shifted the short-run aggregate supply curve to the left. 
B)  It shifted the short-run aggregate supply curve to the right. 
C)  It moved the economy up along a stationary short-run aggregate supply curve. 
D)  It moved the economy down along a stationary short-run aggregate supply curve. 
A)  It shifted the short-run aggregate supply curve to the left. 
B)  It shifted the short-run aggregate supply curve to the right. 
C)  It moved the economy up along a stationary short-run aggregate supply curve. 
D)  It moved the economy down along a stationary short-run aggregate supply curve.

Which of the following best describes the "interest rate effect"?

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except

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

If the U.S.dollar increases in value relative to other currencies,how does this affect the aggregate demand curve?

A decrease in investment causes the price level to in the short run and in the long run.

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy.As a result

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point C.If investment spending decreases in the economy,where will the eventual long-run equilibrium be?

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,a decrease in the expected future price level would be represented by a movement from

As the recession persisted into 2009,the unemployment rate in the United States rose to ________,the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

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

Which of the following is considered a negative supply shock?

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

One factor which brought on the recession of 2007-2009 was the end of the housing bubble.

Deflation will

At a short-run macroeconomic equilibrium,real GDP is always equal to potential GDP.

The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation.What did this technological change do the short-run supply curve?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 15: Aggregate Demand and Aggregate Supply Analysis

Which of the following best describes the "interest rate effect"?

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except

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

If the U.S.dollar increases in value relative to other currencies,how does this affect the aggregate demand curve?

A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

Workers and firms both expect that prices will be 3% higher next year than they are this year.As a result

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy.As a result

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point C.If investment spending decreases in the economy,where will the eventual long-run equilibrium be?

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,a decrease in the expected future price level would be represented by a movement from

As the recession persisted into 2009,the unemployment rate in the United States rose to ________,the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

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

Which of the following is considered a negative supply shock?

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?

One factor which brought on the recession of 2007-2009 was the end of the housing bubble.

Deflation will

At a short-run macroeconomic equilibrium,real GDP is always equal to potential GDP.

The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation.What did this technological change do the short-run supply curve?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

A decrease in investment causes the price level to in the short run and in the long run.