Question 1

Which of the following best describes the effects of a fall in the price level?

Accepted Answer

A) Dollars are worth more, so people spend more. 
B) Dollars are worth more, so people spend less. 
C) Dollars are worth less, so people spend more. 
D) Dollars are worth less, so people spend less. 
A) Dollars are worth more, so people spend more. 
B) Dollars are worth more, so people spend less. 
C) Dollars are worth less, so people spend more. 
D) Dollars are worth less, so people spend less.

Question 2

In the 1970s people had become accustomed to high inflation. In 1979, the Bank of Canada decided to fight inflation and decreased the money supply growth rates. Many people thought that the Bank of Canada's action would cause a recession. Is this thinking consistent with the aggregate demand and aggregate supply model? Explain. According to monetary misperceptions theory, what should have happened to output if the inflation rate fell relative to what people expected? Explain.

Accepted Answer

The decrease in the money supply would s

Question 3

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Accepted Answer

There are occasional short-lived periods

Question 4

Which of the following did NOT happen during the onset of the Great Depression?

Accepted Answer

A) The money supply fell as households took money out of banks. 
B) The Bank of Canada decreased the bank rate. 
C) The real GDP per person fell about 30 percent. 
D) Bankers began holding greater reserves. 
A) The money supply fell as households took money out of banks. 
B) The Bank of Canada decreased the bank rate. 
C) The real GDP per person fell about 30 percent. 
D) Bankers began holding greater reserves.

Question 5

In which of the following situations does investment spending increase?

Accepted Answer

A) when the price level rises, causing interest rates to rise 
B) when the price level rises, causing interest rates to fall 
C) when the price level falls, causing interest rates to rise 
D) when the price level falls, causing interest rates to fall 
A) when the price level rises, causing interest rates to rise 
B) when the price level rises, causing interest rates to fall 
C) when the price level falls, causing interest rates to rise 
D) when the price level falls, causing interest rates to fall

Question 6

Which of the following adjusts to bring aggregate supply and demand into balance?

Accepted Answer

A) the price level 
B) the real rate of interest 
C) the money supply 
D) technology 
A) the price level 
B) the real rate of interest 
C) the money supply 
D) technology

Question 7

Suppose the economy is initially in long-run equilibrium. Which of the following best describes the state of the economy after an increase in aggregate demand?

Accepted Answer

A) Prices and output are higher. 
B) Prices and output are lower. 
C) Prices are higher and output is the same. 
D) Prices are the same and output is lower. 
A) Prices and output are higher. 
B) Prices and output are lower. 
C) Prices are higher and output is the same. 
D) Prices are the same and output is lower.

Question 8

What are the effects of a decrease in the price level?

Accepted Answer

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

Question 9

According to the sticky price theory, which of the following is consistent with an unexpected fall in the price level?

Accepted Answer

A) Some firms' prices are lower than desired, which increases their sales. 
B) Some firms' prices are lower than desired, which depresses their sales. 
C) Some firms' prices are higher than desired, which increases their sales. 
D) Some firms' prices are higher than desired, which depresses their sales. 
A) Some firms' prices are lower than desired, which increases their sales. 
B) Some firms' prices are lower than desired, which depresses their sales. 
C) Some firms' prices are higher than desired, which increases their sales. 
D) Some firms' prices are higher than desired, which depresses their sales.

Question 10

When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?

Accepted Answer

A) by a movement to the left along a given aggregate demand curve 
B) by shifting aggregate demand to the left 
C) by shifting aggregate supply the left 
D) by a movement to the right along the aggregate demand curve 
A) by a movement to the left along a given aggregate demand curve 
B) by shifting aggregate demand to the left 
C) by shifting aggregate supply the left 
D) by a movement to the right along the aggregate demand curve

Question 11

Consider the exhibit below for the following questions.
Figure 14-1  
-Refer to Figure 14-1. How would an adverse shift in aggregate supply move the economy?

Accepted Answer

A) from A to B 
B) from C to D 
C) from B to A 
D) from D to C 
A) from A to B 
B) from C to D 
C) from B to A 
D) from D to C

Question 12

Why does a decrease in the price level induce an increase in the aggregate quantity of goods and services demanded?

Accepted Answer

A) because as wealth falls, interest rates rise, and the dollar appreciates 
B) because as wealth falls, interest rates rise, and the dollar depreciates 
C) because as wealth rises, interest rates rise, and the dollar appreciates 
D) because as wealth rises, interest rates fall, and the dollar depreciates 
A) because as wealth falls, interest rates rise, and the dollar appreciates 
B) because as wealth falls, interest rates rise, and the dollar depreciates 
C) because as wealth rises, interest rates rise, and the dollar appreciates 
D) because as wealth rises, interest rates fall, and the dollar depreciates

Question 13

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

Accepted Answer

A) intermediate goods 
B) income taxes 
C) net exports 
D) government deficit 
A) intermediate goods 
B) income taxes 
C) net exports 
D) government deficit

Question 14

Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to Scenario 14-2. How does the new long-run equilibrium differ from the original one?

Accepted Answer

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

Question 15

In the mid-1970s the price of oil rose dramatically. What did this event cause?

Accepted Answer

A) It shifted aggregate supply left. 
B) It caused Canadian prices to fall. 
C) The aggregate demand increased because of an increase in the demand for gasoline. 
D) Nominal GDP increased. 
A) It shifted aggregate supply left. 
B) It caused Canadian prices to fall. 
C) The aggregate demand increased because of an increase in the demand for gasoline. 
D) Nominal GDP increased.

Question 16

According to classical economic theory, which of the following do changes in the money supply affect?

Accepted Answer

A) nominal variables and real variables 
B) nominal variables, but not real variables 
C) real variables, but not nominal variables 
D) neither nominal nor real variables 
A) nominal variables and real variables 
B) nominal variables, but not real variables 
C) real variables, but not nominal variables 
D) neither nominal nor real variables

Question 17

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Accepted Answer

A) Aggregate demand shifts right. 
B) Aggregate demand shifts left. 
C) If the dollar appreciates, aggregate demand shifts right; if other countries experience recessions aggregate demand shifts left. 
D) If the dollar appreciates, aggregate demand shifts left; if other countries experience recessions aggregate demand shifts right. 
A) Aggregate demand shifts right. 
B) Aggregate demand shifts left. 
C) If the dollar appreciates, aggregate demand shifts right; if other countries experience recessions aggregate demand shifts left. 
D) If the dollar appreciates, aggregate demand shifts left; if other countries experience recessions aggregate demand shifts right.

Question 18

Which of the following shifts the short-run aggregate supply right?

Accepted Answer

A) an increase in the price level 
B) an increase in the minimum wage 
C) a decrease in the price of oil 
D) a decrease in immigration from abroad 
A) an increase in the price level 
B) an increase in the minimum wage 
C) a decrease in the price of oil 
D) a decrease in immigration from abroad

Question 19

In a recession, compared to the percentage decline in GDP, what happens to investment spending?

Accepted Answer

A) Investment spending falls by a larger percentage than GDP. 
B) Investment spending falls by about the same percentage as GDP. 
C) Investment spending falls by a smaller percentage than GDP. 
D) Investment spending falls, but the percentage change is sometimes much larger and sometimes much smaller. 
A) Investment spending falls by a larger percentage than GDP. 
B) Investment spending falls by about the same percentage as GDP. 
C) Investment spending falls by a smaller percentage than GDP. 
D) Investment spending falls, but the percentage change is sometimes much larger and sometimes much smaller.

Question 20

Suppose there was an economic contraction caused by a shift in aggregate supply; suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Accepted Answer

A) Aggregate supply would shift to the right 
B) Aggregate supply would shift to the left 
C) Aggregate demand would shift to the right. 
D) Aggregate demand would shift to the left. 
A) Aggregate supply would shift to the right 
B) Aggregate supply would shift to the left 
C) Aggregate demand would shift to the right. 
D) Aggregate demand would shift to the left.

Which of the following best describes the effects of a fall in the price level?

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Which of the following did NOT happen during the onset of the Great Depression?

In which of the following situations does investment spending increase?

Which of the following adjusts to bring aggregate supply and demand into balance?

Suppose the economy is initially in long-run equilibrium. Which of the following best describes the state of the economy after an increase in aggregate demand?

What are the effects of a decrease in the price level?

According to the sticky price theory, which of the following is consistent with an unexpected fall in the price level?

When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?

Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. How would an adverse shift in aggregate supply move the economy?

Why does a decrease in the price level induce an increase in the aggregate quantity of goods and services demanded?

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

In the mid-1970s the price of oil rose dramatically. What did this event cause?

According to classical economic theory, which of the following do changes in the money supply affect?

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Which of the following shifts the short-run aggregate supply right?

In a recession, compared to the percentage decline in GDP, what happens to investment spending?

Suppose there was an economic contraction caused by a shift in aggregate supply; suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 14: Aggregate Demand and Aggregate Supply

Which of the following best describes the effects of a fall in the price level?

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Which of the following did NOT happen during the onset of the Great Depression?

In which of the following situations does investment spending increase?

Which of the following adjusts to bring aggregate supply and demand into balance?

Suppose the economy is initially in long-run equilibrium. Which of the following best describes the state of the economy after an increase in aggregate demand?

What are the effects of a decrease in the price level?

According to the sticky price theory, which of the following is consistent with an unexpected fall in the price level?

When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?

Consider the exhibit below for the following questions. Figure 14-1 -Refer to Figure 14-1. How would an adverse shift in aggregate supply move the economy?

Why does a decrease in the price level induce an increase in the aggregate quantity of goods and services demanded?

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

In the mid-1970s the price of oil rose dramatically. What did this event cause?

According to classical economic theory, which of the following do changes in the money supply affect?

How does Canadian aggregate demand change if the dollar appreciates or other countries experience recessions?

Which of the following shifts the short-run aggregate supply right?

In a recession, compared to the percentage decline in GDP, what happens to investment spending?

Suppose there was an economic contraction caused by a shift in aggregate supply; suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters