Question 1

Which of the following is correct?

Accepted Answer

A) Economic fluctuations are easily predicted by competent economists. 
B) Recessions have never occurred very close together. 
C) Spending, income, and production do not fluctuate closely with real GDP. 
D) None of the above is correct. 
A) Economic fluctuations are easily predicted by competent economists. 
B) Recessions have never occurred very close together. 
C) Spending, income, and production do not fluctuate closely with real GDP. 
D) None of the above is correct.

Question 2

In 2001, the United States was in recession. Which of the following things would you not expect to have happened?

Accepted Answer

A) increased layoffs and firings 
B) a higher rate of bankruptcy 
C) increased claims for unemployment insurance 
D) increased investment spending 
A) increased layoffs and firings 
B) a higher rate of bankruptcy 
C) increased claims for unemployment insurance 
D) increased investment spending

Question 3

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP, argue that declines in these variables are to be expected.

Accepted Answer

Variables that fall along with real GDP

Question 4

During recessions

Accepted Answer

A) sales and profits fall. 
B) sales and profits rise. 
C) sales rise, profits fall. 
D) profits fall, sales rise. 
A) sales and profits fall. 
B) sales and profits rise. 
C) sales rise, profits fall. 
D) profits fall, sales rise.

Question 5

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

Accepted Answer

A) because unemployment is low wages will be bid up and short-run aggregate supply will shift right. 
B) because unemployment is low wages will be bid down and short-run aggregate supply will shift right. 
C) because unemployment is high wages will be bid up and short-run aggregate supply will shift right. 
D) because unemployment is high wages will be bid down and short-run aggregate supply will shift right. 
A) because unemployment is low wages will be bid up and short-run aggregate supply will shift right. 
B) because unemployment is low wages will be bid down and short-run aggregate supply will shift right. 
C) because unemployment is high wages will be bid up and short-run aggregate supply will shift right. 
D) because unemployment is high wages will be bid down and short-run aggregate supply will shift right.

Question 6

Economic variables are most often expressed in

Accepted Answer

A) nominal terms, and that's what's important. 
B) nominal terms, but real variables are what's important. 
C) real terms, and that's what's important. 
D) real terms, but nominal variables are what's important. 
A) nominal terms, and that's what's important. 
B) nominal terms, but real variables are what's important. 
C) real terms, and that's what's important. 
D) real terms, but nominal variables are what's important.

Question 7

As the price level falls

Accepted Answer

A) people will want to buy more bonds, so the interest rate rises. 
B) people will want to buy fewer bonds, so the interest rate falls. 
C) people will want to buy more bonds, so the interest rate falls. 
D) people will want to buy fewer bonds, so the interest rate rises. 
A) people will want to buy more bonds, so the interest rate rises. 
B) people will want to buy fewer bonds, so the interest rate falls. 
C) people will want to buy more bonds, so the interest rate falls. 
D) people will want to buy fewer bonds, so the interest rate rises.

Question 8

Other things the same, an increase in the price level makes the dollars people hold worth

Accepted Answer

A) more, so they can buy more. 
B) more, so they can buy less. 
C) less, so they can buy more. 
D) less, so they can buy less. 
A) more, so they can buy more. 
B) more, so they can buy less. 
C) less, so they can buy more. 
D) less, so they can buy less.

Question 9

Historically, as recessions have ended the unemployment rate declined

Accepted Answer

A) gradually to near zero. 
B) rapidly to near zero. 
C) gradually to a rate of about 5%-6%. 
D) rapidly to a rate of about 5%-6%. 
A) gradually to near zero. 
B) rapidly to near zero. 
C) gradually to a rate of about 5%-6%. 
D) rapidly to a rate of about 5%-6%.

Question 10

Other things the same, if prices fell when firms and workers were expecting them to rise, then

Accepted Answer

A) employment and production would rise. 
B) employment would rise and production would fall. 
C) employment would fall and production would rise. 
D) employment and production would fall. 
A) employment and production would rise. 
B) employment would rise and production would fall. 
C) employment would fall and production would rise. 
D) employment and production would fall.

Question 11

Other things the same, a decrease in the price level motivates people to hold

Accepted Answer

A) less money, so they lend less, and the interest rate rises. 
B) less money, so they lend more, and the interest rate falls. 
C) more money, so they lend more, and the interest rate rises. 
D) more money, so they lend less, and the interest rate falls. 
A) less money, so they lend less, and the interest rate rises. 
B) less money, so they lend more, and the interest rate falls. 
C) more money, so they lend more, and the interest rate rises. 
D) more money, so they lend less, and the interest rate falls.

Question 12

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. In the long run, the change in price expectations created by pessimism shifts

Accepted Answer

A) long-run aggregate supply right. 
B) long-run aggregate supply left. 
C) short-run aggregate supply right. 
D) short-run aggregate supply left. 
A) long-run aggregate supply right. 
B) long-run aggregate supply left. 
C) short-run aggregate supply right. 
D) short-run aggregate supply left.

Question 13

Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes

Accepted Answer

A) both the short run and the long run. 
B) the short run, but not the long run. 
C) the long run, but not the short run. 
D) neither the long run nor the short run. 
A) both the short run and the long run. 
B) the short run, but not the long run. 
C) the long run, but not the short run. 
D) neither the long run nor the short run.

Question 14

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Accepted Answer

A) True 
 B)False

Question 15

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

Accepted Answer

A) True 
 B)False

Question 16

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
-Refer to Optimism. In the short run what happens to the price level and real GDP?

Accepted Answer

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

Question 17

If the price level rises above what was expected and nominal wages are fixed, then

Accepted Answer

A) production becomes less profitable so firms will hire fewer workers. 
B) production becomes less profitable so firms will hire more workers. 
C) production becomes more profitable so firms will hire fewer workers. 
D) production become more profitable so firms will hire more workers. 
A) production becomes less profitable so firms will hire fewer workers. 
B) production becomes less profitable so firms will hire more workers. 
C) production becomes more profitable so firms will hire fewer workers. 
D) production become more profitable so firms will hire more workers.

Question 18

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

Accepted Answer

A) the slope of short-run aggregate supply. 
B) the slope of long-run aggregate supply. 
C) the slope of the aggregate-demand curve. 
D) everything that makes the aggregate-demand curve shift. 
A) the slope of short-run aggregate supply. 
B) the slope of long-run aggregate supply. 
C) the slope of the aggregate-demand curve. 
D) everything that makes the aggregate-demand curve shift.

Question 19

Consider the exhibit below for the following questions.Figure 20-1  
-Refer to Figure 20-1. An increase in the money supply would move the economy from C to

Accepted Answer

A) B in the short run and the long run. 
B) D in the short run and the long run. 
C) B in the short run and A in the long run. 
D) D in the short run and C in the long run. 
A) B in the short run and the long run. 
B) D in the short run and the long run. 
C) B in the short run and A in the long run. 
D) D in the short run and C in the long run.

Question 20

The quantity of money has no real impact on things people really care about like whether or not they have a job. Most economists would agree that this statement is appropriate concerning

Accepted Answer

A) both the short run and the long run. 
B) the short run, but not the long run. 
C) the long run, but not the short run. 
D) neither the long run nor the short run. 
A) both the short run and the long run. 
B) the short run, but not the long run. 
C) the long run, but not the short run. 
D) neither the long run nor the short run.

Exam 20: Aggregate Demand and Aggregate Supply

Which of the following is correct?

In 2001, the United States was in recession. Which of the following things would you not expect to have happened?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP, argue that declines in these variables are to be expected.

During recessions

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

Economic variables are most often expressed in

As the price level falls

Other things the same, an increase in the price level makes the dollars people hold worth

Historically, as recessions have ended the unemployment rate declined

Other things the same, if prices fell when firms and workers were expecting them to rise, then

Other things the same, a decrease in the price level motivates people to hold

Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.

If the price level rises above what was expected and nominal wages are fixed, then

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

Consider the exhibit below for the following questions.Figure 20-1 -Refer to Figure 20-1. An increase in the money supply would move the economy from C to

The quantity of money has no real impact on things people really care about like whether or not they have a job. Most economists would agree that this statement is appropriate concerning

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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