Question 1

An increase in the price level and a reduction in output would result from

Accepted Answer

A) a fall in stock prices. 
B) natural disasters such as hurricanes, floods, and droughts. 
C) declining government expenditures. 
D) tax rebates. 
A) a fall in stock prices. 
B) natural disasters such as hurricanes, floods, and droughts. 
C) declining government expenditures. 
D) tax rebates.

Question 2

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.
-Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A) The expected price level rises. Bargains are struck for higher wages. 
B) The expected price level rises. Bargains are struck for lower wages. 
C) The expected price level falls. Bargains are struck for higher wages. 
D) The expected price level falls. Bargains are struck for lower wages. 
A) The expected price level rises. Bargains are struck for higher wages. 
B) The expected price level rises. Bargains are struck for lower wages. 
C) The expected price level falls. Bargains are struck for higher wages. 
D) The expected price level falls. Bargains are struck for lower wages.

Question 3

Most economists use the aggregate demand and aggregate supply model primarily to analyze

Accepted Answer

A) short-run fluctuations in the economy. 
B) the effects of macroeconomic policy on the prices of individual goods. 
C) the long-run effects of international trade policies. 
D) productivity and economic growth. 
A) short-run fluctuations in the economy. 
B) the effects of macroeconomic policy on the prices of individual goods. 
C) the long-run effects of international trade policies. 
D) productivity and economic growth.

Question 4

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then in the short run, real GDP will

Accepted Answer

A) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. 
B) fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. 
C) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. 
D) fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. 
A) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. 
B) fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. 
C) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. 
D) fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

Question 5

As recessions begin, production

Accepted Answer

A) and unemployment both rise. 
B) rises and unemployment falls. 
C) falls and unemployment rises. 
D) and unemployment both fall. 
A) and unemployment both rise. 
B) rises and unemployment falls. 
C) falls and unemployment rises. 
D) and unemployment both fall.

Question 6

If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.

Accepted Answer

A) True 
 B)False

Question 7

An increase in the expected price level shifts the

Accepted Answer

A) short-run and long-run aggregate supply curves left. 
B) the short-run but not the long-run aggregate supply curve left. 
C) the long-run but not the short-run aggregate supply curve left. 
D) neither the long-run nor the short-run aggregate supply curve left. 
A) short-run and long-run aggregate supply curves left. 
B) the short-run but not the long-run aggregate supply curve left. 
C) the long-run but not the short-run aggregate supply curve left. 
D) neither the long-run nor the short-run aggregate supply curve left.

Question 8

Other things the same, if the price level rises, people

Accepted Answer

A) increase foreign bond purchases, so the dollar appreciates. 
B) increase foreign bond purchases, so the dollar depreciates. 
C) increase domestic bond purchases, so the dollar appreciates. 
D) increase domestic bond purchases, so the dollar depreciates. 
A) increase foreign bond purchases, so the dollar appreciates. 
B) increase foreign bond purchases, so the dollar depreciates. 
C) increase domestic bond purchases, so the dollar appreciates. 
D) increase domestic bond purchases, so the dollar depreciates.

Question 9

Most economists believe that classical theory describes the world in the short run but not in the long run.

Accepted Answer

A) True 
 B)False

Question 10

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

Consider the exhibit below for the following questions.Figure 20-1  
-Refer to Figure 20-1. In the short run, a favorable shift in aggregate supply would move the economy from

Accepted Answer

A) A to B. 
B) B to C. 
C) C to D. 
D) D to A. 
A) A to B. 
B) B to C. 
C) C to D. 
D) D to A.

Question 12

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

Accepted Answer

A) less than it desires and increase its production. 
B) less than it desires and decrease its production 
C) more than it desires and increase its production. 
D) Less than it desires and decrease its production. 
A) less than it desires and increase its production. 
B) less than it desires and decrease its production 
C) more than it desires and increase its production. 
D) Less than it desires and decrease its production.

Question 13

As the price level falls

Accepted Answer

A) people will want to hold more money, so the interest rate rises. 
B) people will want to hold more money, so the interest rate falls. 
C) people will want to hold less money, so the interest rate falls. 
D) people will want to hold less money, so the interest rate rises. 
A) people will want to hold more money, so the interest rate rises. 
B) people will want to hold more money, so the interest rate falls. 
C) people will want to hold less money, so the interest rate falls. 
D) people will want to hold less money, so the interest rate rises.

Question 14

When the dollar depreciates, U.S.

Accepted Answer

A) exports and imports increase. 
B) exports increase, while imports decrease. 
C) exports decrease, while imports increase. 
D) exports and imports decrease. 
A) exports and imports increase. 
B) exports increase, while imports decrease. 
C) exports decrease, while imports increase. 
D) exports and imports decrease.

Question 15

Other things the same, as the price level rises, the real value of a dollar

Accepted Answer

A) rises, and interest rates rise. 
B) rises, and interest rates fall. 
C) falls, and interest rates rise. 
D) falls, and interest rates fall. 
A) rises, and interest rates rise. 
B) rises, and interest rates fall. 
C) falls, and interest rates rise. 
D) falls, and interest rates fall.

Question 16

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Accepted Answer

A) True 
 B)False

Question 17

People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?

Accepted Answer

A) both sticky price theory and sticky wage theory 
B) sticky price theory but not sticky wage theory 
C) sticky wage theory but not sticky price theory 
D) neither sticky wage theory nor sticky price theory 
A) both sticky price theory and sticky wage theory 
B) sticky price theory but not sticky wage theory 
C) sticky wage theory but not sticky price theory 
D) neither sticky wage theory nor sticky price theory

Question 18

Make a list of things that would shift the aggregate demand curve to the right.

Accepted Answer

Examples (and variations on examples) in

Question 19

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run,

Accepted Answer

A) real GDP will rise and the price level might rise, fall, or stay the same. 
B) real GDP will fall and the price level might rise, fall, or stay the same. 
C) the price level will rise, and real GDP might rise, fall, or stay the same. 
D) the price level will fall, and real GDP might rise, fall, or stay the same. 
A) real GDP will rise and the price level might rise, fall, or stay the same. 
B) real GDP will fall and the price level might rise, fall, or stay the same. 
C) the price level will rise, and real GDP might rise, fall, or stay the same. 
D) the price level will fall, and real GDP might rise, fall, or stay the same.

Question 20

Investment is a

Accepted Answer

A) small part of real GDP, so it accounts for a small share of the fluctuation in real GDP. 
B) small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP. 
C) large part of real GDP, so it accounts for a large share of the fluctuation in real GDP. 
D) large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP. 
A) small part of real GDP, so it accounts for a small share of the fluctuation in real GDP. 
B) small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP. 
C) large part of real GDP, so it accounts for a large share of the fluctuation in real GDP. 
D) large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.

Exam 20: Aggregate Demand and Aggregate Supply

An increase in the price level and a reduction in output would result from

Most economists use the aggregate demand and aggregate supply model primarily to analyze

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then in the short run, real GDP will

As recessions begin, production

If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.

An increase in the expected price level shifts the

Other things the same, if the price level rises, people

Most economists believe that classical theory describes the world in the short run but not in the long run.

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. In the short run, a favorable shift in aggregate supply would move the economy from

When the price level rises more than expected, a firm with a sticky price will sell its output at a price that is

As the price level falls

When the dollar depreciates, U.S.

Other things the same, as the price level rises, the real value of a dollar

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?

Make a list of things that would shift the aggregate demand curve to the right.

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run,

Investment is a

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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