Question 1

Which of the following can explain the upward slope of the short-run aggregate supply curve?

Accepted Answer

A) nominal wages are slow to adjust to changing economic conditions 
B) as the price level falls, the exchange rate falls 
C) an increase in the money supply lowers the interest rate 
D) an increase in the interest rate increases investment spending 
A) nominal wages are slow to adjust to changing economic conditions 
B) as the price level falls, the exchange rate falls 
C) an increase in the money supply lowers the interest rate 
D) an increase in the interest rate increases investment spending

Question 2

In 1986, OPEC countries increased their production of oil. This caused

Accepted Answer

A) the price level to rise. 
B) aggregate supply to shift right. 
C) unemployment to rise. 
D) None of the above is correct. 
A) the price level to rise. 
B) aggregate supply to shift right. 
C) unemployment to rise. 
D) None of the above is correct.

Question 3

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 4

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

Accepted Answer

A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) aggregate supply left. 
A) aggregate demand right. 
B) aggregate demand left. 
C) aggregate supply right. 
D) aggregate supply left.

Question 5

The model of aggregate demand and aggregate supply explains the relationship between

Accepted Answer

A) the price and quantity of a particular good. 
B) unemployment and output. 
C) wages and employment. 
D) real GDP and the price level. 
A) the price and quantity of a particular good. 
B) unemployment and output. 
C) wages and employment. 
D) real GDP and the price level.

Question 6

Which of the following shifts both short-run and long-run aggregate supply left?

Accepted Answer

A) a decrease in the actual price level 
B) a decrease in the expected price level 
C) a decrease in the capital stock 
D) a decrease in the money supply 
A) a decrease in the actual price level 
B) a decrease in the expected price level 
C) a decrease in the capital stock 
D) a decrease in the money supply

Question 7

Figure 20-2.  
-Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS1 to AS2

Accepted Answer

A) could be caused by an outbreak of war in the Middle East. 
B) could be caused by a decrease in the expected price level. 
C) causes the economy to experience an increase in the unemployment rate. 
D) causes the economy to experience stagflation. 
A) could be caused by an outbreak of war in the Middle East. 
B) could be caused by a decrease in the expected price level. 
C) causes the economy to experience an increase in the unemployment rate. 
D) causes the economy to experience stagflation.

Question 8

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Accepted Answer

A) True 
 B)False

Question 9

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. How is the new long-run equilibrium different from the original one?

Accepted Answer

A) both price and real GDP are higher. 
B) both price and real GDP are lower. 
C) the price level is the same and GDP is lower. 
D) the price level is lower and real GDP is the same. 
A) both price and real GDP are higher. 
B) both price and real GDP are lower. 
C) the price level is the same and GDP is lower. 
D) the price level is lower and real GDP is the same.

Question 10

The aggregate demand and aggregate supply graph has the

Accepted Answer

A) quantity of output on the horizontal axis. Output is best measured by real GDP. 
B) quantity of output on the horizontal axis. Output is best measured by nominal GDP. 
C) quantity of output on the vertical axis. Output is best measured by real GDP. 
D) quantity of output on the vertical axis. Output is best measured by nominal GDP. 
A) quantity of output on the horizontal axis. Output is best measured by real GDP. 
B) quantity of output on the horizontal axis. Output is best measured by nominal GDP. 
C) quantity of output on the vertical axis. Output is best measured by real GDP. 
D) quantity of output on the vertical axis. Output is best measured by nominal GDP.

Question 11

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Accepted Answer

A) increased, so it would increase production. 
B) increased, so it would decrease production. 
C) decreased, so it would increase production. 
D) decreased, so it would decrease production. 
A) increased, so it would increase production. 
B) increased, so it would decrease production. 
C) decreased, so it would increase production. 
D) decreased, so it would decrease production.

Question 12

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Accepted Answer

A) rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. 
B) rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. 
C) fall. This fall in price expectations shifts the short-run aggregate supply curve to the right. 
D) fall. This fall in price expectations shifts the short-run aggregate supply curve to the left. 
A) rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. 
B) rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. 
C) fall. This fall in price expectations shifts the short-run aggregate supply curve to the right. 
D) fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.

Question 14

Which of the following typically rises during a recession?

Accepted Answer

A) consumption 
B) unemployment 
C) corporate profits 
D) automobile sales 
A) consumption 
B) unemployment 
C) corporate profits 
D) automobile sales

Question 15

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Accepted Answer

A) the wealth effect and the interest-rate effect 
B) the wealth effect but not the interest-rate effect 
C) the interest-rate effect but not the wealth effect 
D) neither the wealth-effect nor the interest rate effect 
A) the wealth effect and the interest-rate effect 
B) the wealth effect but not the interest-rate effect 
C) the interest-rate effect but not the wealth effect 
D) neither the wealth-effect nor the interest rate effect

Question 17

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Accepted Answer

A) decreases the real value of money. 
B) increases the real value of the dollar in foreign exchange markets. 
C) decreases the interest rate. 
D) All of the above are correct. 
A) decreases the real value of money. 
B) increases the real value of the dollar in foreign exchange markets. 
C) decreases the interest rate. 
D) All of the above are correct.

Question 18

If aggregate demand shifts left, then in the short run

Accepted Answer

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

Question 19

U.S. Financial Crisis
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on.
-Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?

Accepted Answer

A) the supply of dollars would shift right and the exchange rate would rise. 
B) the supply of dollars would shift right and the exchange rate would fall. 
C) the supply of dollars would shift left and the exchange rate would rise. 
D) None of the above is correct. 
A) the supply of dollars would shift right and the exchange rate would rise. 
B) the supply of dollars would shift right and the exchange rate would fall. 
C) the supply of dollars would shift left and the exchange rate would rise. 
D) None of the above is correct.

Question 20

Which of the following would shift the long-run aggregate supply curve right?

Accepted Answer

A) both an increase in the capital stock and an increase in the price level 
B) an increase in the capital stock, but not an increase in the price level 
C) an increase in the money supply, but not an increase in the capital stock 
D) neither an increase in the money supply nor an increase in the capital stock 
A) both an increase in the capital stock and an increase in the price level 
B) an increase in the capital stock, but not an increase in the price level 
C) an increase in the money supply, but not an increase in the capital stock 
D) neither an increase in the money supply nor an increase in the capital stock

Exam 20: Aggregate Demand and Aggregate Supply

Which of the following can explain the upward slope of the short-run aggregate supply curve?

In 1986, OPEC countries increased their production of oil. This caused

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

The model of aggregate demand and aggregate supply explains the relationship between

Which of the following shifts both short-run and long-run aggregate supply left?

Figure 20-2. -Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS1 to AS2

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

The aggregate demand and aggregate supply graph has the

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Which of the following typically rises during a recession?

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

If aggregate demand shifts left, then in the short run

U.S. Financial Crisis Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. -Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?

Which of the following would shift the long-run aggregate supply curve right?

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

Filters

Figure 20-2. -Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS₁ to AS₂