Question 1

Other things the same, when the government spends more, the initial effect is that

Accepted Answer

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

Question 2

If the price level is higher than expected, firms might raise their production in the short run if

Accepted Answer

A) the nominal wage they pay their employees was set based on the expected price level. 
B) prices are costly to adjust and they have set their price at some time in the past but are not ready to change it. 
C) they believe that the price of their product has risen relative to the price of other products, when in fact the rise in the price of their product reflects an increase in the general price level. 
D) All of the above are correct. 
A) the nominal wage they pay their employees was set based on the expected price level. 
B) prices are costly to adjust and they have set their price at some time in the past but are not ready to change it. 
C) they believe that the price of their product has risen relative to the price of other products, when in fact the rise in the price of their product reflects an increase in the general price level. 
D) All of the above are correct.

Question 3

The initial impact of the repeal of an investment tax credit is to 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 4

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

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

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?

Accepted Answer

A) consumer wealth rises 
B) borrowing rises 
C) each dollar is worth more domestic goods 
D) the dollar appreciates relative to other currencies 
A) consumer wealth rises 
B) borrowing rises 
C) each dollar is worth more domestic goods 
D) the dollar appreciates relative to other currencies

Question 6

When the price level falls

Accepted Answer

A) The interest rate falls because people will want to hold more money and so sell bonds. 
B) Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes. 
C) Both A and B are correct. 
D) None of the above are correct. 
A) The interest rate falls because people will want to hold more money and so sell bonds. 
B) Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes. 
C) Both A and B are correct. 
D) None of the above are correct.

Question 7

The economic boom of the early 1940s resulted mostly from

Accepted Answer

A) increased government expenditures. 
B) falling prices of oil and other natural resources. 
C) an increase in the growth rate of the money supply. 
D) rapid developments in transportation, electronics, and communication. 
A) increased government expenditures. 
B) falling prices of oil and other natural resources. 
C) an increase in the growth rate of the money supply. 
D) rapid developments in transportation, electronics, and communication.

Question 8

The long-run aggregate supply curve shifts right if

Accepted Answer

A) technology improves. 
B) the price level decreases. 
C) the money supply increases. 
D) All of the above are correct. 
A) technology improves. 
B) the price level decreases. 
C) the money supply increases. 
D) All of the above are correct.

Question 9

Other things the same, if the price level falls, domestic interest rates

Accepted Answer

A) rise, so domestic residents will want to hold more foreign bonds. 
B) rise, so domestic residents will want to hold fewer foreign bonds. 
C) fall, so domestic residents will want to hold more foreign bonds. 
D) fall, so domestic residents will want to hold fewer foreign bonds. 
A) rise, so domestic residents will want to hold more foreign bonds. 
B) rise, so domestic residents will want to hold fewer foreign bonds. 
C) fall, so domestic residents will want to hold more foreign bonds. 
D) fall, so domestic residents will want to hold fewer foreign bonds.

Question 10

Which of the following would both shift aggregate demand right?

Accepted Answer

A) the price level decreases and government expenditures increase 
B) the price level decreases and the government repeals an investment tax credit 
C) government expenditures increase and the money supply increases 
D) None of the above are correct. 
A) the price level decreases and government expenditures increase 
B) the price level decreases and the government repeals an investment tax credit 
C) government expenditures increase and the money supply increases 
D) None of the above are correct.

Question 11

Other things the same, the aggregate quantity of output supplied will decrease if the price level

Accepted Answer

A) is lower than expected so that firms believe the relative price of their output has increased. 
B) is lower than expected so that firms believe the relative price of their output has decreased. 
C) is higher than expected so that firms believe the relative price of their output has increased. 
D) is higher than expected so that firms believe the relative price of their output has decreased. 
A) is lower than expected so that firms believe the relative price of their output has increased. 
B) is lower than expected so that firms believe the relative price of their output has decreased. 
C) is higher than expected so that firms believe the relative price of their output has increased. 
D) is higher than expected so that firms believe the relative price of their output has decreased.

Question 12

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 long run, the change in price expectations created by optimism 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

When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase in the price of their product relative to others and so decrease their production.

Accepted Answer

A) True 
 B)False

Question 14

Other things the same, a decrease 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 15

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

When the price level increases, the purc

Question 16

Which of the following is included in the aggregate demand for goods and services?

Accepted Answer

A) consumption demand 
B) investment demand 
C) net exports 
D) All of the above are correct. 
A) consumption demand 
B) investment demand 
C) net exports 
D) All of the above are correct.

Question 17

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Accepted Answer

A) increased consumption, which shifts the aggregate-demand curve right. 
B) increased consumption, which shifts the aggregate-demand curve left. 
C) decreased consumption, which shifts the aggregate-demand curve right. 
D) decreased consumption, which shifts the aggregate-demand curve left. 
A) increased consumption, which shifts the aggregate-demand curve right. 
B) increased consumption, which shifts the aggregate-demand curve left. 
C) decreased consumption, which shifts the aggregate-demand curve right. 
D) decreased consumption, which shifts the aggregate-demand curve left.

Question 18

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) an increase in the money supply 
B) an increase in net exports due to something other than a change in domestic prices 
C) an investment tax credit 
D) All of the above are correct. 
A) an increase in the money supply 
B) an increase in net exports due to something other than a change in domestic prices 
C) an investment tax credit 
D) All of the above are correct.

Question 19

Most economist agree that money changes real GDP in both the short and long run.

Accepted Answer

A) True 
 B)False

Question 20

Other things the same, continued increases in the money supply lead to

Accepted Answer

A) continued increases in the price level and real GDP. 
B) continued increases in the price level but not continued increases in real GDP. 
C) continued increases in real GDP but not continued increases in the price level. 
D) a one-time permanent increase in both prices and real GDP. 
A) continued increases in the price level and real GDP. 
B) continued increases in the price level but not continued increases in real GDP. 
C) continued increases in real GDP but not continued increases in the price level. 
D) a one-time permanent increase in both prices and real GDP.

Exam 20: Aggregate Demand and Aggregate Supply

Other things the same, when the government spends more, the initial effect is that

If the price level is higher than expected, firms might raise their production in the short run if

The initial impact of the repeal of an investment tax credit is to shift

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?

When the price level falls

The economic boom of the early 1940s resulted mostly from

The long-run aggregate supply curve shifts right if

Other things the same, if the price level falls, domestic interest rates

Which of the following would both shift aggregate demand right?

Other things the same, the aggregate quantity of output supplied will decrease if the price level

When the price level rises unexpectedly, some businesses may mistake part of the increase for an increase in the price of their product relative to others and so decrease their production.

Other things the same, a decrease in the price level makes the dollars people hold worth

Explain how an increase in the price level changes interest rates. How does this change in interest rates lead to changes in investment and net exports?

Which of the following is included in the aggregate demand for goods and services?

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Which of the following shifts aggregate demand to the right?

Most economist agree that money changes real GDP in both the short and long run.

Other things the same, continued increases in the money supply lead to

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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