Question 1

An increase in the price level and a reduction in output would result from

Accepted Answer

A)  a fall in stock prices. 
B)  natural disasters such as hurricanes,floods,and droughts. 
C)  declining government expenditures. 
D)  tax rebates. 
A)  a fall in stock prices. 
B)  natural disasters such as hurricanes,floods,and droughts. 
C)  declining government expenditures. 
D)  tax rebates.

Question 2

An economic contraction caused by a shift in aggregate demand causes prices to

Accepted Answer

A)  rise in the short run,and rise even more in the long run. 
B)  rise in the short run,and fall back to their original level in the long run. 
C)  fall in the short run,and fall even more in the long run. 
D)  fall in the short run,and rise back to their original level in the long run. 
A)  rise in the short run,and rise even more in the long run. 
B)  rise in the short run,and fall back to their original level in the long run. 
C)  fall in the short run,and fall even more in the long run. 
D)  fall in the short run,and rise back to their original level in the long run.

Question 3

If the central bank increased the money supply in response to a decrease in short-run aggregate supply,unemployment would return towards its natural rate,but prices would rise even more.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is correct?

Accepted Answer

A)  The short-run,but not the long-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
B)  The long-run,but not the short-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
C)  The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables. 
D)  Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables. 
A)  The short-run,but not the long-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
B)  The long-run,but not the short-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. 
C)  The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables. 
D)  Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

Question 5

Most economist agree that money changes real GDP in both the short and long run.

Accepted Answer

A) True 
 B)False

Question 6

The sticky-price theory implies that

Accepted Answer

A)  the short-run aggregate-supply curve is upward-sloping. 
B)  an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce. 
C)  menu costs influence the speed of adjustment of prices. 
D)  All of the above are correct. 
A)  the short-run aggregate-supply curve is upward-sloping. 
B)  an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce. 
C)  menu costs influence the speed of adjustment of prices. 
D)  All of the above are correct.

Question 7

Other things the same,as the price level falls,

Accepted Answer

A)  the dollar depreciates. 
B)  the interest rate rises. 
C)  people feel less wealthy. 
D)  All of the above are correct. 
A)  the dollar depreciates. 
B)  the interest rate rises. 
C)  people feel less wealthy. 
D)  All of the above are correct.

Question 8

The recessions associated with the business cycle come at regular intervals.

Accepted Answer

A) True 
 B)False

Question 9

Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business

Accepted Answer

A)  Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve. 
B)  Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right. 
C)  Reducing the minimum wage would shift long-run aggregate supply to the right.Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve. 
D)  Reducing the minimum wage would have no affect on the long-run aggregate supply curve.Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right. 
A)  Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve. 
B)  Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right. 
C)  Reducing the minimum wage would shift long-run aggregate supply to the right.Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve. 
D)  Reducing the minimum wage would have no affect on the long-run aggregate supply curve.Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right.

Question 10

In the context of aggregate demand and aggregate supply,the wealth effect refers to the idea that,when the price level decreases,the real wealth of households

Accepted Answer

A)  increases and as a result consumption spending increases.This effect contributes to the downward slope of the aggregate-demand curve. 
B)  decreases and as a result consumption spending increases.This effect contributes to the upward slope of the aggregate-supply curve. 
C)  increases and as a result households increase their money holdings; in turn,interest rates increase and investment spending decreases.This effect contributes to the downward slope of the aggregate-demand curve. 
D)  decreases and as a result households increase their money holdings; in turn,interest rates increase and investment spending decreases.This effect contributes to the upward slope of the aggregate-supply curve. 
A)  increases and as a result consumption spending increases.This effect contributes to the downward slope of the aggregate-demand curve. 
B)  decreases and as a result consumption spending increases.This effect contributes to the upward slope of the aggregate-supply curve. 
C)  increases and as a result households increase their money holdings; in turn,interest rates increase and investment spending decreases.This effect contributes to the downward slope of the aggregate-demand curve. 
D)  decreases and as a result households increase their money holdings; in turn,interest rates increase and investment spending decreases.This effect contributes to the upward slope of the aggregate-supply curve.

Question 11

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Accepted Answer

A) True 
 B)False

Question 12

Most economists believe that classical macroeconomic theory is a good description of the economy

Accepted Answer

A)  in neither the short nor long run. 
B)  in the short run and in the long run. 
C)  in the short run,but not in the long run. 
D)  in the long run,but not in the short run. 
A)  in neither the short nor long run. 
B)  in the short run and in the long run. 
C)  in the short run,but not in the long run. 
D)  in the long run,but not in the short run.

Question 13

The effects of a higher than expected price level are shown by

Accepted Answer

A)  shifting the short-run aggregate supply curve right. 
B)  shifting the short-run aggregate supply curve left. 
C)  moving to the right along a given aggregate supply curve. 
D)  moving to the left along a given aggregate supply curve. 
A)  shifting the short-run aggregate supply curve right. 
B)  shifting the short-run aggregate supply curve left. 
C)  moving to the right along a given aggregate supply curve. 
D)  moving to the left along a given aggregate supply curve.

Question 14

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run

Accepted Answer

A)  real GDP will rise and the price level might rise,fall,or stay the same. 
B)  real GDP will fall and the price level might rise,fall,or stay the same. 
C)  the price level will rise,and real GDP might rise,fall,or stay the same. 
D)  the price level will fall,and real GDP might rise,fall,or stay the same. 
A)  real GDP will rise and the price level might rise,fall,or stay the same. 
B)  real GDP will fall and the price level might rise,fall,or stay the same. 
C)  the price level will rise,and real GDP might rise,fall,or stay the same. 
D)  the price level will fall,and real GDP might rise,fall,or stay the same.

Question 15

Which of the following shifts short-run aggregate supply right?

Accepted Answer

A)  an increase in the minimum wage 
B)  an increase in immigration from abroad 
C)  an increase in the price of oil 
D)  an increase in the actual price level 
A)  an increase in the minimum wage 
B)  an increase in immigration from abroad 
C)  an increase in the price of oil 
D)  an increase in the actual price level

Question 16

As the price level rises

Accepted Answer

A)  people will want to buy more bonds,so the interest rate rises. 
B)  people will want to buy fewer bonds,so the interest rate falls. 
C)  people will want to buy more bonds,so the interest rate falls. 
D)  people will want to buy fewer bonds,so the interest rate rises. 
A)  people will want to buy more bonds,so the interest rate rises. 
B)  people will want to buy fewer bonds,so the interest rate falls. 
C)  people will want to buy more bonds,so the interest rate falls. 
D)  people will want to buy fewer bonds,so the interest rate rises.

Question 17

Keynes believed that economies experiencing high unemployment should adopt policies to

Accepted Answer

A)  reduce the money supply. 
B)  reduce government expenditures. 
C)  increase aggregate demand. 
D)  increase aggregate supply. 
A)  reduce the money supply. 
B)  reduce government expenditures. 
C)  increase aggregate demand. 
D)  increase aggregate supply.

Question 18

The long-run aggregate supply curve

Accepted Answer

A)  is vertical. 
B)  is a graphical representation of the classical dichotomy. 
C)  indicates monetary neutrality in the long run. 
D)  All of the above are correct. 
A)  is vertical. 
B)  is a graphical representation of the classical dichotomy. 
C)  indicates monetary neutrality in the long run. 
D)  All of the above are correct.

Question 19

When the price level changes,which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Accepted Answer

A)  the real value of wealth 
B)  the interest rate 
C)  the value of currency in the market for foreign exchange 
D)  All of the above are correct. 
A)  the real value of wealth 
B)  the interest rate 
C)  the value of currency in the market for foreign exchange 
D)  All of the above are correct.

Question 20

Changes in the price level affect which components of aggregate demand?

Accepted Answer

A)  only consumption and investment 
B)  only consumption and net exports 
C)  only investment 
D)  consumption,investment,and net exports 
A)  only consumption and investment 
B)  only consumption and net exports 
C)  only investment 
D)  consumption,investment,and net exports

Exam 23: Aggregate Demand and Aggregate Supply

An increase in the price level and a reduction in output would result from

An economic contraction caused by a shift in aggregate demand causes prices to

If the central bank increased the money supply in response to a decrease in short-run aggregate supply,unemployment would return towards its natural rate,but prices would rise even more.

Which of the following is correct?

Most economist agree that money changes real GDP in both the short and long run.

The sticky-price theory implies that

Other things the same,as the price level falls,

The recessions associated with the business cycle come at regular intervals.

Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business

In the context of aggregate demand and aggregate supply,the wealth effect refers to the idea that,when the price level decreases,the real wealth of households

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Most economists believe that classical macroeconomic theory is a good description of the economy

The effects of a higher than expected price level are shown by

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run

Which of the following shifts short-run aggregate supply right?

As the price level rises

Keynes believed that economies experiencing high unemployment should adopt policies to

The long-run aggregate supply curve

When the price level changes,which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Changes in the price level affect which components of aggregate demand?

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

Filters