Question 1

The aggregate demand curve is

Accepted Answer

A)  downward sloping. 
B)  vertical. 
C)  horizontal. 
D)  U shaped. 
A)  downward sloping. 
B)  vertical. 
C)  horizontal. 
D)  U shaped. A

Question 2

-Refer to the above figure. Suppose the economy's initial equilibrium is represented by the intersection of LRAS1 and AD1. Now there is an increase in labor productivity which increases total planned production at any given price level and aggregate demand remains stable. The resulting change in the economy's long-run equilibrium position would be represented by a

Accepted Answer

A)  movement from B to D. 
B)  movement from C to D. 
C)  movement from C to B. 
D)  movement from A to B. 
A)  movement from B to D. 
B)  movement from C to D. 
C)  movement from C to B. 
D)  movement from A to B. A

Question 3

Long-run equilibrium will occur at the price level at which

Accepted Answer

A)  the long-run aggregate demand and short-run aggregate supply curves intersect. 
B)  the aggregate demand and short-run aggregate supply curves intersect. 
C)  the aggregate demand and long-run aggregate supply curves intersect. 
D)  the short-run aggregate supply and long-run aggregate supply curves intersect. 
A)  the long-run aggregate demand and short-run aggregate supply curves intersect. 
B)  the aggregate demand and short-run aggregate supply curves intersect. 
C)  the aggregate demand and long-run aggregate supply curves intersect. 
D)  the short-run aggregate supply and long-run aggregate supply curves intersect. C

Question 4

What is measured on the horizontal axis on the aggregate demand graph?

Accepted Answer

A)  nominal income 
B)  real GDP per year 
C)  the price level 
D)  unemployment 
A)  nominal income 
B)  real GDP per year 
C)  the price level 
D)  unemployment

Question 5

The long-run aggregate supply curve is vertical because

Accepted Answer

A)  the economy has yet to use all its available resources. 
B)  the economy has reached its potential real Gross Domestic Product (GDP) and is at full employment. 
C)  the economy has contracted. 
D)  the economy has large numbers of unemployed. 
A)  the economy has yet to use all its available resources. 
B)  the economy has reached its potential real Gross Domestic Product (GDP) and is at full employment. 
C)  the economy has contracted. 
D)  the economy has large numbers of unemployed.

Question 6

As the capital stock grows and technology improves, we would expect the long-run aggregate supply curve to

Accepted Answer

A)  shift right. 
B)  shift left. 
C)  remain the same. 
D)  first shift right, then shift left. 
A)  shift right. 
B)  shift left. 
C)  remain the same. 
D)  first shift right, then shift left.

Question 7

An indirect effect of an increase in the price level works through

Accepted Answer

A)  people substituting out of domestic goods and into foreign goods as exchange rates rise. 
B)  changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate. 
C)  interest rates as people save more as the higher prices make their money balances less attractive. 
D)  interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures. 
A)  people substituting out of domestic goods and into foreign goods as exchange rates rise. 
B)  changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate. 
C)  interest rates as people save more as the higher prices make their money balances less attractive. 
D)  interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.

Question 8

What is measured on the horizontal axis of the aggregate demand/aggregate supply model?

Accepted Answer

A)  Prices 
B)  Real Gross Domestic Product (GDP) 
C)  Real wealth 
D)  Nominal income 
A)  Prices 
B)  Real Gross Domestic Product (GDP) 
C)  Real wealth 
D)  Nominal income

Question 9

The U.S. economy has had persistent inflation in recent decades. A possible explanation for the inflation is that

Accepted Answer

A)  there have been decreases in the growth rate while aggregate demand has remained unchanged. 
B)  there have been increases in the growth rate while aggregate demand has remained unchanged. 
C)  there have been decreases in aggregate demand while aggregate supply has remained unchanged. 
D)  growth in aggregate demand has been greater than growth in aggregate supply. 
A)  there have been decreases in the growth rate while aggregate demand has remained unchanged. 
B)  there have been increases in the growth rate while aggregate demand has remained unchanged. 
C)  there have been decreases in aggregate demand while aggregate supply has remained unchanged. 
D)  growth in aggregate demand has been greater than growth in aggregate supply.

Question 10

The full-employment and full-adjustment level of real Gross Domestic Product (GDP) in the economy is represented by

Accepted Answer

A)  the LRAS curve. 
B)  the horizontal line at the price level. 
C)  the AD curve. 
D)  the distance between the LRAS curve and the AD curve. 
A)  the LRAS curve. 
B)  the horizontal line at the price level. 
C)  the AD curve. 
D)  the distance between the LRAS curve and the AD curve.

Question 11

Why is the long-run aggregate supply curve a vertical line?

Accepted Answer

A)  At that level of real GDP, the unemployment rate is 0 percent. 
B)  At that level of real GDP, the inflation rate is 0 percent. 
C)  At that level of real GDP, the production costs are at their lowest level. 
D)  At that level of real GDP, production costs have fully adjusted to price changes. 
A)  At that level of real GDP, the unemployment rate is 0 percent. 
B)  At that level of real GDP, the inflation rate is 0 percent. 
C)  At that level of real GDP, the production costs are at their lowest level. 
D)  At that level of real GDP, production costs have fully adjusted to price changes.

Question 12

Which of the following would cause an increase in aggregate demand (AD)?

Accepted Answer

A)  A decrease in price levels 
B)  An increase in interest rates 
C)  A decrease in taxes 
D)  A rise in the foreign exchange value of the dollar 
A)  A decrease in price levels 
B)  An increase in interest rates 
C)  A decrease in taxes 
D)  A rise in the foreign exchange value of the dollar

Question 13

Other things being equal, along an aggregate demand curve, a higher price level is associated with

Accepted Answer

A)  a higher real GDP. 
B)  a lower real GDP. 
C)  a lower nominal GDP. 
D)  higher income levels. 
A)  a higher real GDP. 
B)  a lower real GDP. 
C)  a lower nominal GDP. 
D)  higher income levels.

Question 14

Which of the following statements is true about the interest rate effect?

Accepted Answer

A)  The interest rate effect is why the aggregate demand curve is upward sloping. 
B)  A lower price level lowers the interest rate, which causes businesses and consumers to increase their desired spending. 
C)  A higher price level lowers the interest rate, which causes business and consumers to increase their desired spending. 
D)  Expenditures will change as a result of a change in the real value of money balances when there is a change in the price level. 
A)  The interest rate effect is why the aggregate demand curve is upward sloping. 
B)  A lower price level lowers the interest rate, which causes businesses and consumers to increase their desired spending. 
C)  A higher price level lowers the interest rate, which causes business and consumers to increase their desired spending. 
D)  Expenditures will change as a result of a change in the real value of money balances when there is a change in the price level.

Question 15

The real-balance effect refers to

Accepted Answer

A)  the real interest rate. 
B)  the production of real goods and services as opposed to financial instruments. 
C)  the prices of goods and services. 
D)  the real value of cash balances that a person is holding. 
A)  the real interest rate. 
B)  the production of real goods and services as opposed to financial instruments. 
C)  the prices of goods and services. 
D)  the real value of cash balances that a person is holding.

Question 16

Over time in a growing economy, the long run aggregate supply curve will

Accepted Answer

A)  move so as to match the short run aggregate supply (SRAS) curve. 
B)  shift outward to the right. 
C)  shift inward to the left. 
D)  become increasingly steep. 
A)  move so as to match the short run aggregate supply (SRAS) curve. 
B)  shift outward to the right. 
C)  shift inward to the left. 
D)  become increasingly steep.

Question 17

What causes the long-run aggregate supply curve to shift right?

Accepted Answer

A)  economic growth 
B)  inflation 
C)  unemployment 
D)  scarcity 
A)  economic growth 
B)  inflation 
C)  unemployment 
D)  scarcity

Question 18

If consumers' confidence in the economy rises,

Accepted Answer

A)  aggregate demand will shift leftward and the price level will rise. 
B)  aggregate demand will shift leftward and the price level will fall. 
C)  aggregate demand will shift rightward and the price level will rise. 
D)  aggregate demand will shift rightward and the price level will fall. 
A)  aggregate demand will shift leftward and the price level will rise. 
B)  aggregate demand will shift leftward and the price level will fall. 
C)  aggregate demand will shift rightward and the price level will rise. 
D)  aggregate demand will shift rightward and the price level will fall.

Question 19

The aggregate demand curve gives the

Accepted Answer

A)  planned purchases for all goods and services in the economy, holding other things such as the price level constant. 
B)  planned purchase rates for all goods and services in the economy at various price levels. 
C)  demand for goods and services by the government at various price levels. 
D)  amount of all goods everyone wants to buy at various income levels. 
A)  planned purchases for all goods and services in the economy, holding other things such as the price level constant. 
B)  planned purchase rates for all goods and services in the economy at various price levels. 
C)  demand for goods and services by the government at various price levels. 
D)  amount of all goods everyone wants to buy at various income levels.

Question 20

Which of the following is a factor that determines the shape of the aggregate demand curve?

Accepted Answer

A)  The real-balance effect 
B)  The nominal-balance effect 
C)  The price level effect 
D)  The wage effect 
A)  The real-balance effect 
B)  The nominal-balance effect 
C)  The price level effect 
D)  The wage effect

Exam 10: Real GDP and the Price Level in the Long Run

The aggregate demand curve is

Long-run equilibrium will occur at the price level at which

What is measured on the horizontal axis on the aggregate demand graph?

The long-run aggregate supply curve is vertical because

As the capital stock grows and technology improves, we would expect the long-run aggregate supply curve to

An indirect effect of an increase in the price level works through

What is measured on the horizontal axis of the aggregate demand/aggregate supply model?

The U.S. economy has had persistent inflation in recent decades. A possible explanation for the inflation is that

The full-employment and full-adjustment level of real Gross Domestic Product (GDP) in the economy is represented by

Why is the long-run aggregate supply curve a vertical line?

Which of the following would cause an increase in aggregate demand (AD)?

Other things being equal, along an aggregate demand curve, a higher price level is associated with

Which of the following statements is true about the interest rate effect?

The real-balance effect refers to

Over time in a growing economy, the long run aggregate supply curve will

What causes the long-run aggregate supply curve to shift right?

If consumers' confidence in the economy rises,

The aggregate demand curve gives the

Which of the following is a factor that determines the shape of the aggregate demand curve?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters