Question 1

The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.

Accepted Answer

A) True 
 B)False

Question 2

During a recession the economy experiences

Accepted Answer

A)  rising employment and income. 
B)  rising employment and falling income. 
C)  rising income and falling employment. 
D)  falling employment and income. 
A)  rising employment and income. 
B)  rising employment and falling income. 
C)  rising income and falling employment. 
D)  falling employment and income.

Question 3

Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

Accepted Answer

See graph. @#IMG-DLM& Over time,technological adva

Question 4

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?

Accepted Answer

A)  consumer wealth rises 
B)  borrowing rises 
C)  each dollar is worth more domestic goods 
D)  the dollar appreciates relative to other currencies 
A)  consumer wealth rises 
B)  borrowing rises 
C)  each dollar is worth more domestic goods 
D)  the dollar appreciates relative to other currencies

Question 5

Optimism
Imagine that the economy is in long-run equilibrium.Then,perhaps because of improved international relations and increased confidence in policy makers,people become more optimistic about the future and stay this way for some time.
-Refer to Optimism.Which curve shifts and in which direction?

Accepted Answer

A)  aggregate demand shifts right 
B)  aggregate demand shifts left 
C)  aggregate supply shifts right. 
D)  aggregate supply shifts left. 
A)  aggregate demand shifts right 
B)  aggregate demand shifts left 
C)  aggregate supply shifts right. 
D)  aggregate supply shifts left.

Question 6

If banks and speculators in the U.S.decided to exchange U.S.dollars for the foreign currencies of other countries,but foreigners do not desire to increase their holdings of U.S.dollars,then U.S.net exports would

Accepted Answer

A)  rise and aggregate demand would shift left. 
B)  rise and aggregate demand would shift right. 
C)  fall and aggregate demand would shift left. 
D)  fall and aggregate demand would shift right. 
A)  rise and aggregate demand would shift left. 
B)  rise and aggregate demand would shift right. 
C)  fall and aggregate demand would shift left. 
D)  fall and aggregate demand would shift right.

Question 7

What do most economists believe concerning the relation between the price level and real output?

Accepted Answer

Most economists believe that in the long

Question 8

Financial Crisis
Suppose that banks are less able to raise funds and so lend less.Consequently,because people and households are less able to borrow,they spend less at any given price level than they would otherwise.The crisis is persistent so lending should remain depressed for some time.
-Refer to Financial Crisis.In the long run,if the Fed does not respond,the change in price expectations created by the crisis shifts

Accepted Answer

A)  aggregate demand right. 
B)  aggregate demand left. 
C)  short-run aggregate supply right. 
D)  short-run aggregate supply left. 
A)  aggregate demand right. 
B)  aggregate demand left. 
C)  short-run aggregate supply right. 
D)  short-run aggregate supply left.

Question 9

Which of the following is not included in aggregate demand?

Accepted Answer

A)  purchases of stock and bonds 
B)  purchases of services such as visits to the doctor 
C)  purchases of capital goods such as equipment in a factory 
D)  purchases by foreigners of consumer goods produced in the United States 
A)  purchases of stock and bonds 
B)  purchases of services such as visits to the doctor 
C)  purchases of capital goods such as equipment in a factory 
D)  purchases by foreigners of consumer goods produced in the United States

Question 10

When the price level falls

Accepted Answer

A)  people want to hold more money. 
B)  the interest rate rises. 
C)  investment spending rises. 
D)  All of the above are correct. 
A)  people want to hold more money. 
B)  the interest rate rises. 
C)  investment spending rises. 
D)  All of the above are correct.

Question 11

Figure 23-2.  
-Refer to Figure 23-2.The appearance of the long-run aggregate-supply (LRAS)curve

Accepted Answer

A)  is inconsistent with the concept of monetary neutrality. 
B)  is consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS1. 
C)  indicates that Y1 is the natural rate of output. 
D)  All of the above are correct. 
A)  is inconsistent with the concept of monetary neutrality. 
B)  is consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS1. 
C)  indicates that Y1 is the natural rate of output. 
D)  All of the above are correct.

Question 12

Pessimism
Suppose the economy is in long-run equilibrium.Then because of corporate scandal,international tensions,and loss of confidence in policymakers,people become pessimistic regarding the future and retain that level of pessimism for some time.
-Refer to Pessimism.How is the new long-run equilibrium different from the original one?

Accepted Answer

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

Question 13

The classical model is appropriate for analysis of the economy in the

Accepted Answer

A)  long run,since evidence indicates that money is not neutral in the long run. 
B)  long run,since real and nominal variables are essentially determined separately in the long run. 
C)  short run,provided money is not neutral. 
D)  short run,provided real and nominal variables are highly intertwined. 
A)  long run,since evidence indicates that money is not neutral in the long run. 
B)  long run,since real and nominal variables are essentially determined separately in the long run. 
C)  short run,provided money is not neutral. 
D)  short run,provided real and nominal variables are highly intertwined.

Question 14

The position of the long-run aggregate supply curve

Accepted Answer

A)  is determined by the things that determine output in the classical model. 
B)  is at the point where the unemployment rate is zero. 
C)  shifts to the right when the price level increases. 
D)  is at the point where the economy would cease to grow. 
A)  is determined by the things that determine output in the classical model. 
B)  is at the point where the unemployment rate is zero. 
C)  shifts to the right when the price level increases. 
D)  is at the point where the economy would cease to grow.

Question 15

An increase in the expected price level shifts short-run aggregate supply to the

Accepted Answer

A)  right,and an increase in the actual price level shifts short-run aggregate supply to the right. 
B)  right,and an increase in the actual price level does not shift short-run aggregate supply. 
C)  left,and an increase in the actual price level shifts short-run aggregate supply to the left. 
D)  left,and an increase in the actual price level does not shift short-run aggregate supply. 
A)  right,and an increase in the actual price level shifts short-run aggregate supply to the right. 
B)  right,and an increase in the actual price level does not shift short-run aggregate supply. 
C)  left,and an increase in the actual price level shifts short-run aggregate supply to the left. 
D)  left,and an increase in the actual price level does not shift short-run aggregate supply.

Question 16

Which of the following both shift aggregate demand left?

Accepted Answer

A)  a decrease in taxes and at a given price level consumers feel more wealthy 
B)  a decrease in taxes and at a given price level consumers feel less wealthy 
C)  an increase in taxes and at a given price level consumers feel more wealthy 
D)  an increase in taxes and at a given price level consumers feel less wealthy 
A)  a decrease in taxes and at a given price level consumers feel more wealthy 
B)  a decrease in taxes and at a given price level consumers feel less wealthy 
C)  an increase in taxes and at a given price level consumers feel more wealthy 
D)  an increase in taxes and at a given price level consumers feel less wealthy

Question 17

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected,then some firms believe that the relative price of what they produce has

Accepted Answer

A)  decreased,so they increase production. 
B)  decreased,so they decrease production. 
C)  increased,so they increase production. 
D)  increased,so they decrease production. 
A)  decreased,so they increase production. 
B)  decreased,so they decrease production. 
C)  increased,so they increase production. 
D)  increased,so they decrease production.

Question 18

Which of the following is correct?

Accepted Answer

A)  Short run fluctuations in economic activity happen only in developing countries. 
B)  During economic contractions most firms experience rising sales. 
C)  Recessions come at regular intervals and are easy to predict. 
D)  When real GDP falls,the rate of unemployment rises. 
A)  Short run fluctuations in economic activity happen only in developing countries. 
B)  During economic contractions most firms experience rising sales. 
C)  Recessions come at regular intervals and are easy to predict. 
D)  When real GDP falls,the rate of unemployment rises.

Question 19

An increase in the actual price level does not shift the short-run aggregate supply curve,but an expected increase in the price level shifts the short-run aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 20

The short-run effects of an increase in the expected price level include

Accepted Answer

A)  a lower level of output and a lower price level. 
B)  a lower level of output and a higher price level. 
C)  a higher level of output and a lower price level. 
D)  a higher level of output and a higher price level. 
A)  a lower level of output and a lower price level. 
B)  a lower level of output and a higher price level. 
C)  a higher level of output and a lower price level. 
D)  a higher level of output and a higher price level.

Exam 23: Aggregate Demand and Aggregate Supply

The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.

During a recession the economy experiences

Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases?

If banks and speculators in the U.S.decided to exchange U.S.dollars for the foreign currencies of other countries,but foreigners do not desire to increase their holdings of U.S.dollars,then U.S.net exports would

What do most economists believe concerning the relation between the price level and real output?

Which of the following is not included in aggregate demand?

When the price level falls

Figure 23-2. -Refer to Figure 23-2.The appearance of the long-run aggregate-supply (LRAS)curve

The classical model is appropriate for analysis of the economy in the

The position of the long-run aggregate supply curve

An increase in the expected price level shifts short-run aggregate supply to the

Which of the following both shift aggregate demand left?

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected,then some firms believe that the relative price of what they produce has

Which of the following is correct?

An increase in the actual price level does not shift the short-run aggregate supply curve,but an expected increase in the price level shifts the short-run aggregate supply curve to the left.

The short-run effects of an increase in the expected price level include

Ten Principles of 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 Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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