Question 1

The real-balance effect shows that

Accepted Answer

A)  aggregate demand is upward sloping. 
B)  a higher price level leads to higher interest rates. 
C)  a lower price level will increase the purchasing power of currency and increase personal consumption. 
D)  consumption and the price level are positively correlated. 
A)  aggregate demand is upward sloping. 
B)  a higher price level leads to higher interest rates. 
C)  a lower price level will increase the purchasing power of currency and increase personal consumption. 
D)  consumption and the price level are positively correlated.

Question 2

The aggregate demand curve is

Accepted Answer

A)  horizontal if full employment exists in the economy. 
B)  vertical if full employment exists in the economy. 
C)  downward sloping because of the real-balance, interest rate, and open economy effects. 
D)  downward sloping because more goods are produced as per unit cost of producing each item falls. 
A)  horizontal if full employment exists in the economy. 
B)  vertical if full employment exists in the economy. 
C)  downward sloping because of the real-balance, interest rate, and open economy effects. 
D)  downward sloping because more goods are produced as per unit cost of producing each item falls.

Question 3

Which of the following will NOT shift the aggregate demand curve?

Accepted Answer

A)  a change in the price level 
B)  a change in tax rates 
C)  a change in the amount of money in circulation 
D)  a change in real interest rates 
A)  a change in the price level 
B)  a change in tax rates 
C)  a change in the amount of money in circulation 
D)  a change in real interest rates

Question 4

The interest rate effect operates through

Accepted Answer

A)  credit markets by changing borrowing costs. 
B)  the purchasing power of individuals' checking accounts. 
C)  government spending levels. 
D)  labor supply. 
A)  credit markets by changing borrowing costs. 
B)  the purchasing power of individuals' checking accounts. 
C)  government spending levels. 
D)  labor supply.

Question 5

The long-run aggregate supply curve can be thought of as the

Accepted Answer

A)  level of output that the nation is currently producing. 
B)  full-employment level of real GDP. 
C)  level of real GDP associated with a constant price level. 
D)  level of output for which real GDP equals nominal GDP. 
A)  level of output that the nation is currently producing. 
B)  full-employment level of real GDP. 
C)  level of real GDP associated with a constant price level. 
D)  level of output for which real GDP equals nominal GDP.

Question 6

Economic growth can be thought of as

Accepted Answer

A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  an increase in long-run aggregate supply. 
D)  an increase in aggregate demand. 
A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  an increase in long-run aggregate supply. 
D)  an increase in aggregate demand.

Question 7

What will be the result in a growing economy if increases in aggregate demand outpace rightward shifts of the long-run aggregate supply curve?

Accepted Answer

A)  secular deflation 
B)  inflation accompanied by declines in real GDP 
C)  inflation accompanied by increases in real GDP 
D)  a decline in consumption spending 
A)  secular deflation 
B)  inflation accompanied by declines in real GDP 
C)  inflation accompanied by increases in real GDP 
D)  a decline in consumption spending

Question 8

If persistent inflation was due to declines in long-run aggregate supply, what pattern would be observed?

Accepted Answer

A)  Increases in the price level would occur simultaneously with decreases in real GDP. 
B)  Increases in the price level would occur simultaneously with increases in real GDP. 
C)  Only prices of goods would increase; prices of services would remain constant. 
D)  Only prices of services would increase; prices of goods would remain constant. 
A)  Increases in the price level would occur simultaneously with decreases in real GDP. 
B)  Increases in the price level would occur simultaneously with increases in real GDP. 
C)  Only prices of goods would increase; prices of services would remain constant. 
D)  Only prices of services would increase; prices of goods would remain constant.

Question 9

Which of the following is NOT an explanation for the shape of the aggregate demand curve?

Accepted Answer

A)  real balance effect 
B)  interest rate effect 
C)  open economy effect 
D)  investment effect 
A)  real balance effect 
B)  interest rate effect 
C)  open economy effect 
D)  investment effect

Question 10

The aggregate supply curve cannot tell us

Accepted Answer

A)  anything about the quantity demanded of all commodities and the price level. 
B)  what the effect of changes in interest rates will be on real GDP. 
C)  how the total dollar values of spending will ultimately be divided between output and prices. 
D)  how changes in the price level affect quantity demanded of all commodities. 
A)  anything about the quantity demanded of all commodities and the price level. 
B)  what the effect of changes in interest rates will be on real GDP. 
C)  how the total dollar values of spending will ultimately be divided between output and prices. 
D)  how changes in the price level affect quantity demanded of all commodities.

Question 11

When the price level declines,

Accepted Answer

A)  the interest rate rises, and consumers borrow fewer funds, which causes a movement up the aggregate demand curve. 
B)  the interest rate falls, and consumers borrow more funds, which causes a movement down along the aggregate demand curve. 
C)  the interest rate is not affected, so there is no movement along the aggregate demand curve. 
D)  interest rates fall, and consumers borrow more funds, which causes the aggregate demand curve to shift to the left. 
A)  the interest rate rises, and consumers borrow fewer funds, which causes a movement up the aggregate demand curve. 
B)  the interest rate falls, and consumers borrow more funds, which causes a movement down along the aggregate demand curve. 
C)  the interest rate is not affected, so there is no movement along the aggregate demand curve. 
D)  interest rates fall, and consumers borrow more funds, which causes the aggregate demand curve to shift to the left.

Question 12

Higher interest rates

Accepted Answer

A)  reduce total planned real expenditures because they increase the cost of borrowing funds. 
B)  reduce total planned real expenditures because they reduce the income of bankers and other creditors. 
C)  increase total planned real expenditures because they increase the incomes of all people in the economy. 
D)  increase total planned real expenditures because they lower the costs of building new plants and equipment. 
A)  reduce total planned real expenditures because they increase the cost of borrowing funds. 
B)  reduce total planned real expenditures because they reduce the income of bankers and other creditors. 
C)  increase total planned real expenditures because they increase the incomes of all people in the economy. 
D)  increase total planned real expenditures because they lower the costs of building new plants and equipment.

Question 13

-In the above figure, a movement from point B to point A can be explained by

Accepted Answer

A)  an increase in spending due to a war. 
B)  an increase in spending due to increases in education expenditures. 
C)  an increase in the demand for manufacturing goods due to new technology. 
D)  a drop in the price level. 
A)  an increase in spending due to a war. 
B)  an increase in spending due to increases in education expenditures. 
C)  an increase in the demand for manufacturing goods due to new technology. 
D)  a drop in the price level.

Question 14

All of the following would shift the LRAS curve to the right EXCEPT

Accepted Answer

A)  an increase in the size of the labor force. 
B)  a net inflow of human capital. 
C)  an increase in the overall price level. 
D)  an improvement in technology. 
A)  an increase in the size of the labor force. 
B)  a net inflow of human capital. 
C)  an increase in the overall price level. 
D)  an improvement in technology.

Question 15

-Consider the above figure. At a price level of 150,

Accepted Answer

A)  total planned production exceeds total planned real expenditures. 
B)  total planned real expenditures exceed total planned real production. 
C)  inventories of unsold goods decline. 
D)  the price level would rise. 
A)  total planned production exceeds total planned real expenditures. 
B)  total planned real expenditures exceed total planned real production. 
C)  inventories of unsold goods decline. 
D)  the price level would rise.

Question 16

Which of the following would cause aggregate demand to decrease?

Accepted Answer

A)  The government increases taxes on both business and personal income. 
B)  A drop in the foreign exchange value of the dollar 
C)  The Fed increases the amount of money in circulation. 
D)  Businesses and households believe that the economy is headed for good times, so they begin to feel increased security about their jobs. 
A)  The government increases taxes on both business and personal income. 
B)  A drop in the foreign exchange value of the dollar 
C)  The Fed increases the amount of money in circulation. 
D)  Businesses and households believe that the economy is headed for good times, so they begin to feel increased security about their jobs.

Question 17

If there are steady decreases in aggregate supply, the economy will experience

Accepted Answer

A)  a slow decrease in price levels. 
B)  demand-side inflation. 
C)  an expansionary gap. 
D)  supply-side inflation. 
A)  a slow decrease in price levels. 
B)  demand-side inflation. 
C)  an expansionary gap. 
D)  supply-side inflation.

Question 18

Which of the following factors could cause the economy to experience supply-side inflation?

Accepted Answer

A)  Increased security about jobs and future income. 
B)  Government laws which say that the average work week must be reduced by one hour every year. 
C)  Increase the number of immigrants allowed into the country. 
D)  Develop new technology to increase productivity. 
A)  Increased security about jobs and future income. 
B)  Government laws which say that the average work week must be reduced by one hour every year. 
C)  Increase the number of immigrants allowed into the country. 
D)  Develop new technology to increase productivity.

Question 19

When a change in the price level causes a change in the purchasing power of currency, which then changes planned real expenditures at all income levels, it is called

Accepted Answer

A)  the real-balance effect. 
B)  the substitution effect. 
C)  the open-economy effect. 
D)  the interest rate effect. 
A)  the real-balance effect. 
B)  the substitution effect. 
C)  the open-economy effect. 
D)  the interest rate effect.

Question 20

The total of all planned expenditures in the entire economy is

Accepted Answer

A)  the open economy effect. 
B)  LRAS. 
C)  aggregate supply. 
D)  aggregate demand. 
A)  the open economy effect. 
B)  LRAS. 
C)  aggregate supply. 
D)  aggregate demand.

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

The real-balance effect shows that

The aggregate demand curve is

Which of the following will NOT shift the aggregate demand curve?

The interest rate effect operates through

The long-run aggregate supply curve can be thought of as the

Economic growth can be thought of as

What will be the result in a growing economy if increases in aggregate demand outpace rightward shifts of the long-run aggregate supply curve?

If persistent inflation was due to declines in long-run aggregate supply, what pattern would be observed?

Which of the following is NOT an explanation for the shape of the aggregate demand curve?

The aggregate supply curve cannot tell us

When the price level declines,

Higher interest rates

-In the above figure, a movement from point B to point A can be explained by

All of the following would shift the LRAS curve to the right EXCEPT

-Consider the above figure. At a price level of 150,

Which of the following would cause aggregate demand to decrease?

If there are steady decreases in aggregate supply, the economy will experience

Which of the following factors could cause the economy to experience supply-side inflation?

When a change in the price level causes a change in the purchasing power of currency, which then changes planned real expenditures at all income levels, it is called

The total of all planned expenditures in the entire economy is

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

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