Question 1

A short period of falling incomes and rising unemployment is called:

Accepted Answer

A)  a business cycle 
B)  a boom 
C)  a recession 
D)  a depression 
A)  a business cycle 
B)  a boom 
C)  a recession 
D)  a depression

Question 2

The exchange-rate effect implies that when the price level increases:

Accepted Answer

A)  net exports decrease 
B)  net exports increase 
C)  net exports do not change 
D)  any of the above is possible 
A)  net exports decrease 
B)  net exports increase 
C)  net exports do not change 
D)  any of the above is possible

Question 3

Mundell-Fleming's effect implies that a currency depreciation:

Accepted Answer

A)  increases net exports and decreases the quantity of goods and services demanded 
B)  decreases net exports and increases the quantity of goods and services demanded 
C)  increases net exports and increases the quantity of goods and services demanded 
D)  decreases net exports and decreases the quantity of goods and services demanded 
A)  increases net exports and decreases the quantity of goods and services demanded 
B)  decreases net exports and increases the quantity of goods and services demanded 
C)  increases net exports and increases the quantity of goods and services demanded 
D)  decreases net exports and decreases the quantity of goods and services demanded

Question 4

Which of the following is the possible cause of recession?

Accepted Answer

A)  Staging the Cricket world cup 2014-15 
B)  A decline in the world economy 
C)  A boom in the stock market 
D)  None of the above 
A)  Staging the Cricket world cup 2014-15 
B)  A decline in the world economy 
C)  A boom in the stock market 
D)  None of the above

Question 5

The aggregate-demand curve slopes downward because when the price level falls: (1) consumers feel wealthier, causing them to demand more consumer goods; (2) interest rates fall, causing firms and households to demand more investment goods; and (3) the exchange rate depreciates, causing net export demand to increase.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a policy instrument?

Accepted Answer

A)  Money supply 
B)  Government expenditure 
C)  Taxes 
D)  All of the above 
A)  Money supply 
B)  Government expenditure 
C)  Taxes 
D)  All of the above

Question 7

The components of aggregate demand are:

Accepted Answer

A)  consumption, investment, government and exports 
B)  consumption, investment, government and imports 
C)  consumption, investment, government and net exports 
D)  consumption, investment, and net exports, since only private expenditures are included 
A)  consumption, investment, government and exports 
B)  consumption, investment, government and imports 
C)  consumption, investment, government and net exports 
D)  consumption, investment, and net exports, since only private expenditures are included

Question 8

The aggregate-supply curve is vertical in the long run because:

Accepted Answer

A)  of the classical dichotomy and money neutrality 
B)  aggregate demand is downward-sloping 
C)  overall output goes up when prices go up 
D)  overall output goes down when prices go up 
A)  of the classical dichotomy and money neutrality 
B)  aggregate demand is downward-sloping 
C)  overall output goes up when prices go up 
D)  overall output goes down when prices go up

Question 9

The aggregate-demand curve is downward-sloping because of Pigou's wealth effect, Keynes's interest-rate effect, Mundell-Fleming's exchange-rate effect and Veblen's envy effect.

Accepted Answer

A) True 
 B)False

Question 10

Starting with AD1 and AS1 in the graph below, if taxes increase, then in the short run:

Accepted Answer

A)  output stays the same and prices fall 
B)  output increases and prices rise 
C)  output increases and prices fall 
D)  output decreases and prices rise 
E)  output decreases and prices fall 
A)  output stays the same and prices fall 
B)  output increases and prices rise 
C)  output increases and prices fall 
D)  output decreases and prices rise 
E)  output decreases and prices fall

Question 11

If there is an excess demand situation in the economy at the current price level, then the:

Accepted Answer

A)  price level will remain the same 
B)  economy must be operating on the flat section of the AS curve 
C)  price level will increase 
D)  price level will definitely decrease 
A)  price level will remain the same 
B)  economy must be operating on the flat section of the AS curve 
C)  price level will increase 
D)  price level will definitely decrease

Question 12

Applying the aggregate demand/aggregate supply model, and assuming there is a small amount of cyclical unemployment, describe the impact on GDP and prices of each of the following events:
a. A decrease in investment
b. A reduction in benefit payments
c. An increase in labour productivity
d. A decrease in export receipts
e. Interest rates decrease
f. Money supply decreases
g. A decrease in crude oil prices
h. A fall in the level of consumer confidence

Accepted Answer

a. An increase in investment [AD@#LAT-DLM&; Y@#LAT-DLM&; P@#LAT-DLM&]

Question 13

The Pigou effect implies that:

Accepted Answer

A)  when the price level decreases, consumer purchasing power goes up, and therefore consumers spend more 
B)  when consumers spend more, the price level increases 
C)  when consumer income increases, consumers spend more 
D)  when the price level decreases, consumers save more, and therefore become wealthier 
A)  when the price level decreases, consumer purchasing power goes up, and therefore consumers spend more 
B)  when consumers spend more, the price level increases 
C)  when consumer income increases, consumers spend more 
D)  when the price level decreases, consumers save more, and therefore become wealthier

Question 14

When factors (other than price level) that affect the quantity of goods and services supplied change:

Accepted Answer

A)  the aggregate-supply curve shifts 
B)  the aggregate-supply curve is not affected 
C)  the aggregate supply becomes vertical 
D)  the aggregate-supply curve becomes horizontal 
E)  the aggregate-demand curve shifts 
A)  the aggregate-supply curve shifts 
B)  the aggregate-supply curve is not affected 
C)  the aggregate supply becomes vertical 
D)  the aggregate-supply curve becomes horizontal 
E)  the aggregate-demand curve shifts

Question 15

Which of the following explanations for the upward slope of the short-run aggregate-supply curve is correct?

Accepted Answer

A)  Misperceptions 
B)  Sticky wages 
C)  Sticky prices 
D)  All of the above 
A)  Misperceptions 
B)  Sticky wages 
C)  Sticky prices 
D)  All of the above

Question 16

If resources become more productive:

Accepted Answer

A)  neither the short-run aggregate curve nor the long-run supply curve shifts 
B)  the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts 
C)  the aggregate-demand curve shifts 
D)  both the short-run and the long-run aggregate-supply curves shift 
A)  neither the short-run aggregate curve nor the long-run supply curve shifts 
B)  the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts 
C)  the aggregate-demand curve shifts 
D)  both the short-run and the long-run aggregate-supply curves shift

Question 17

Starting with AD1 and AS1 in the graph below, if the world price of oil rises, then in the short run:

Accepted Answer

A)  output stays the same and prices fall 
B)  output decreases and prices fall 
C)  output decreases and prices rise 
D)  output increases and prices rise 
E)  output stays the same and prices rise 
A)  output stays the same and prices fall 
B)  output decreases and prices fall 
C)  output decreases and prices rise 
D)  output increases and prices rise 
E)  output stays the same and prices rise

Question 18

In the long run, the shift in aggregate demand is reflected fully in the inflation rate and not at all in the level of output.

Accepted Answer

A) True 
 B)False

Question 19

An economy can produce more if it experiences:

Accepted Answer

A)  advances in technology 
B)  an increase in labour 
C)  an increase in capital 
D)  all of the above 
E)  none of the above 
A)  advances in technology 
B)  an increase in labour 
C)  an increase in capital 
D)  all of the above 
E)  none of the above

Question 20

The Keynesian sticky-wage theory states that in the short run:

Accepted Answer

A)  wages do not adjust to changes in prices; therefore, real wages change and suppliers adjust their output levels 
B)  wages adjust to changes in prices; therefore, real wages are unchanged and suppliers do not adjust their output levels 
C)  wages adjust instantaneously to changes in prices 
D)  none of the above is an implication of the Keynesian sticky-wage theory 
A)  wages do not adjust to changes in prices; therefore, real wages change and suppliers adjust their output levels 
B)  wages adjust to changes in prices; therefore, real wages are unchanged and suppliers do not adjust their output levels 
C)  wages adjust instantaneously to changes in prices 
D)  none of the above is an implication of the Keynesian sticky-wage theory

Exam 33: Aggregate Demand and Aggregate Supply

A short period of falling incomes and rising unemployment is called:

The exchange-rate effect implies that when the price level increases:

Mundell-Fleming's effect implies that a currency depreciation:

Which of the following is the possible cause of recession?

Which of the following is a policy instrument?

The components of aggregate demand are:

The aggregate-supply curve is vertical in the long run because:

The aggregate-demand curve is downward-sloping because of Pigou's wealth effect, Keynes's interest-rate effect, Mundell-Fleming's exchange-rate effect and Veblen's envy effect.

Starting with AD1 and AS1 in the graph below, if taxes increase, then in the short run:

If there is an excess demand situation in the economy at the current price level, then the:

The Pigou effect implies that:

When factors (other than price level) that affect the quantity of goods and services supplied change:

Which of the following explanations for the upward slope of the short-run aggregate-supply curve is correct?

If resources become more productive:

Starting with AD1 and AS1 in the graph below, if the world price of oil rises, then in the short run:

In the long run, the shift in aggregate demand is reflected fully in the inflation rate and not at all in the level of output.

An economy can produce more if it experiences:

The Keynesian sticky-wage theory states that in the short run:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Starting with AD₁ and AS₁ in the graph below, if taxes increase, then in the short run:

Starting with AD₁ and AS₁ in the graph below, if the world price of oil rises, then in the short run: