Question 1

Which of the following statements about aggregate demand is correct?

Accepted Answer

A)  In the short run, shifts in aggregate demand do not affect the overall price level and output 
B)  In the short run, shifts in aggregate demand affect the overall price level but do not affect output 
C)  In the long run, shifts in aggregate demand cause fluctuations in output 
D)  In the long run, shifts in aggregate demand affect the overall price level but do not affect output 
A)  In the short run, shifts in aggregate demand do not affect the overall price level and output 
B)  In the short run, shifts in aggregate demand affect the overall price level but do not affect output 
C)  In the long run, shifts in aggregate demand cause fluctuations in output 
D)  In the long run, shifts in aggregate demand affect the overall price level but do not affect output

Question 2

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

Accepted Answer

A)  the aggregate-supply curve is downward-sloping 
B)  the aggregate-supply curve is upward-sloping 
C)  the aggregate-supply curve is horizontal 
D)  the aggregate-supply curve is vertical 
A)  the aggregate-supply curve is downward-sloping 
B)  the aggregate-supply curve is upward-sloping 
C)  the aggregate-supply curve is horizontal 
D)  the aggregate-supply curve is vertical

Question 3

A significant 'shock' to the economy such as the oil price hikes of the 1970s can be represented by:

Accepted Answer

A)  a left shift of the AS curve 
B)  a right shift of the AD curve 
C)  a left shift of the AD curve 
D)  a right shift of the AS curve 
A)  a left shift of the AS curve 
B)  a right shift of the AD curve 
C)  a left shift of the AD curve 
D)  a right shift of the AS curve

Question 4

While the short-run aggregate curve is vertical, the long run aggregate-supply curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 5

The short-run aggregate curve's shape is affected by the economy's position in regards to full employment.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in the price of imported raw materials owing to appreciation of the $A would shift the AS-curve to the right.

Accepted Answer

A) True 
 B)False

Question 7

Investment spending averages about two-thirds of GDP, yet declines in investment account for only about one-seventh of the declines in GDP during recessions.

Accepted Answer

A) True 
 B)False

Question 8

The wealth effect is also known as:

Accepted Answer

A)  the Keynes effect 
B)  the Doppler effect 
C)  the Mundell-Fleming effect 
D)  the Pigou effect 
A)  the Keynes effect 
B)  the Doppler effect 
C)  the Mundell-Fleming effect 
D)  the Pigou effect

Question 9

Most economists believe that in the short run:

Accepted Answer

A)  real and nominal variables are highly interrelated 
B)  only real variables are highly interrelated 
C)  only nominal variables are highly interrelated 
D)  none of the above 
A)  real and nominal variables are highly interrelated 
B)  only real variables are highly interrelated 
C)  only nominal variables are highly interrelated 
D)  none of the above

Question 10

Okun's law looks at the relationship between:

Accepted Answer

A)  inflation and unemployment 
B)  inflation and real GDP 
C)  incentives and productivity 
D)  real GDP fluctuations and unemployment 
A)  inflation and unemployment 
B)  inflation and real GDP 
C)  incentives and productivity 
D)  real GDP fluctuations and unemployment

Question 11

When each firm is producing its capacity and there is full employment, this shows:

Accepted Answer

A)  an inflationary gap 
B)  a deflationary gap 
C)  the long run AS curve 
D)  all of these 
A)  an inflationary gap 
B)  a deflationary gap 
C)  the long run AS curve 
D)  all of these

Question 12

Starting with AD1 and AS1 in the graph below, if resources become more productive:

Accepted Answer

A)  equilibrium in the economy moves from point c to point b 
B)  equilibrium in the economy moves from point b to point c 
C)  equilibrium in the economy moves from point c to point d 
D)  equilibrium in the economy moves from point d to point c 
E)  equilibrium in the economy moves from point c to point a 
A)  equilibrium in the economy moves from point c to point b 
B)  equilibrium in the economy moves from point b to point c 
C)  equilibrium in the economy moves from point c to point d 
D)  equilibrium in the economy moves from point d to point c 
E)  equilibrium in the economy moves from point c to point a

Question 13

The downward slope of the aggregate-demand curve shows that:

Accepted Answer

A)  a fall in the price level reduces the overall quantity of goods and services demanded 
B)  a rise in the price level increases the overall quantity of goods and services demanded 
C)  a fall in the price level has no effect on the overall quantity of goods and services demanded 
D)  a fall in the price level increases the overall quantity of goods and services demanded 
A)  a fall in the price level reduces the overall quantity of goods and services demanded 
B)  a rise in the price level increases the overall quantity of goods and services demanded 
C)  a fall in the price level has no effect on the overall quantity of goods and services demanded 
D)  a fall in the price level increases the overall quantity of goods and services demanded

Question 14

If the government decides to increase expenditure on public transportation, there will be:

Accepted Answer

A)  a movement along the aggregate-demand curve 
B)  no effect on the aggregate-demand curve 
C)  a shift of the aggregate-supply curve 
D)  a shift of the aggregate-demand curve to the left 
E)  a shift of the aggregate-demand curve to the right 
A)  a movement along the aggregate-demand curve 
B)  no effect on the aggregate-demand curve 
C)  a shift of the aggregate-supply curve 
D)  a shift of the aggregate-demand curve to the left 
E)  a shift of the aggregate-demand curve to the right

Question 15

The aggregate-supply curve shows:

Accepted Answer

A)  the quantity of goods and services that firms produce and sell at any income level 
B)  the quantity of goods and services that firms produce and sell at any price level 
C)  the quantity of goods and services that firms purchase at any income level 
D)  the quantity of goods and services that firms purchase at any price level 
A)  the quantity of goods and services that firms produce and sell at any income level 
B)  the quantity of goods and services that firms produce and sell at any price level 
C)  the quantity of goods and services that firms purchase at any income level 
D)  the quantity of goods and services that firms purchase at any price level

Question 16

When the price level falls:

Accepted Answer

A)  households try to increase their holdings of money 
B)  households try to reduce their holdings of money 
C)  households don't change their holdings of money 
D)  none of the above 
A)  households try to increase their holdings of money 
B)  households try to reduce their holdings of money 
C)  households don't change their holdings of money 
D)  none of the above

Question 17

When production costs rise, in the short run:

Accepted Answer

A)  the aggregate-supply curve shifts down to the right 
B)  the aggregate-demand curve shifts down to the left 
C)  the aggregate-demand curve shifts up to the right 
D)  the aggregate-supply curve shifts up to the left 
E)  both the aggregate-demand curve and the aggregate-supply curve shift to the left 
A)  the aggregate-supply curve shifts down to the right 
B)  the aggregate-demand curve shifts down to the left 
C)  the aggregate-demand curve shifts up to the right 
D)  the aggregate-supply curve shifts up to the left 
E)  both the aggregate-demand curve and the aggregate-supply curve shift to the left

Question 18

Which statement is correct?

Accepted Answer

A)  A movement along the AD curve results from a price change 
B)  The AS curve will shift leftwards if the labour force decreases 
C)  If there is excess aggregate demand at the current price level, the price level will rise 
D)  The long-run AS curve shows each firm is producing at its capacity and there is full employment 
A)  A movement along the AD curve results from a price change 
B)  The AS curve will shift leftwards if the labour force decreases 
C)  If there is excess aggregate demand at the current price level, the price level will rise 
D)  The long-run AS curve shows each firm is producing at its capacity and there is full employment

Question 19

According to the new classical misperceptions theory, the upward slope of the short-run aggregate-supply curve results from:

Accepted Answer

A)  misperceptions about the quantity of goods and services demanded 
B)  misperceptions about the ability of production 
C)  misperceptions about relative prices 
D)  none of the above 
A)  misperceptions about the quantity of goods and services demanded 
B)  misperceptions about the ability of production 
C)  misperceptions about relative prices 
D)  none of the above

Question 20

Stagflation is said to occur when the economy experiences both:

Accepted Answer

A)  inflation and growth 
B)  deflation and recession 
C)  inflation and recession 
D)  deflation and growth 
A)  inflation and growth 
B)  deflation and recession 
C)  inflation and recession 
D)  deflation and growth

Exam 33: Aggregate Demand and Aggregate Supply

Which of the following statements about aggregate demand is correct?

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

A significant 'shock' to the economy such as the oil price hikes of the 1970s can be represented by:

While the short-run aggregate curve is vertical, the long run aggregate-supply curve is upward sloping.

The short-run aggregate curve's shape is affected by the economy's position in regards to full employment.

A decrease in the price of imported raw materials owing to appreciation of the $A would shift the AS-curve to the right.

Investment spending averages about two-thirds of GDP, yet declines in investment account for only about one-seventh of the declines in GDP during recessions.

The wealth effect is also known as:

Most economists believe that in the short run:

Okun's law looks at the relationship between:

When each firm is producing its capacity and there is full employment, this shows:

Starting with AD1 and AS1 in the graph below, if resources become more productive:

The downward slope of the aggregate-demand curve shows that:

If the government decides to increase expenditure on public transportation, there will be:

The aggregate-supply curve shows:

When the price level falls:

When production costs rise, in the short run:

Which statement is correct?

According to the new classical misperceptions theory, the upward slope of the short-run aggregate-supply curve results from:

Stagflation is said to occur when the economy experiences both:

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 resources become more productive: