Question 1

When the economy's AS curve is positively sloped,the multiplier in the AD/AS model is

Accepted Answer

A) constant. 
B) equal to one. 
C) equal to the simple multiplier. 
D) smaller than the simple multiplier. 
E) larger than the simple multiplier. 
A) constant. 
B) equal to one. 
C) equal to the simple multiplier. 
D) smaller than the simple multiplier. 
E) larger than the simple multiplier. D

Question 2

A decrease in aggregate supply in the short run is

Accepted Answer

A) shown by a shift to the left of the AS curve. 
B) shown by a shift to the right of the AS curve. 
C) interpreted to mean that more national output will be supplied at any given price level. 
D) caused by a decrease in the price level. 
E) caused by an increase in the price level. 
A) shown by a shift to the left of the AS curve. 
B) shown by a shift to the right of the AS curve. 
C) interpreted to mean that more national output will be supplied at any given price level. 
D) caused by a decrease in the price level. 
E) caused by an increase in the price level. A

Question 3

If the economy's AS curve is completely horizontal,the multiplier in the AD/AS model is

Accepted Answer

A) infinitely large. 
B) equal to the simple multiplier. 
C) smaller than the simple multiplier. 
D) is zero. 
E) negative. 
A) infinitely large. 
B) equal to the simple multiplier. 
C) smaller than the simple multiplier. 
D) is zero. 
E) negative. B

Question 4

A decrease in aggregate supply in the short run is

Accepted Answer

A) reflected in a movement to the left along the AS curve. 
B) reflected in a shift to the right in the AS curve. 
C) interpreted to mean that less total output will be supplied at any given price level. 
D) caused by a decrease in the price level. 
E) caused by an increase in the price level. 
A) reflected in a movement to the left along the AS curve. 
B) reflected in a shift to the right in the AS curve. 
C) interpreted to mean that less total output will be supplied at any given price level. 
D) caused by a decrease in the price level. 
E) caused by an increase in the price level.

Question 5

Consider the basic AD/AS model in the short run.When there is a change in autonomous desired expenditure,the simple multiplier is equal to the

Accepted Answer

A) product of the horizontal shift of the AD curve times the change in autonomous expenditure. 
B) product of the vertical movement along the AD curve times the change in autonomous expenditure. 
C) ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. 
D) ratio of the vertical movement along the AD curve to the change in autonomous expenditure. 
E) ratio of the vertical shift of the AD curve to the change in autonomous expenditure. 
A) product of the horizontal shift of the AD curve times the change in autonomous expenditure. 
B) product of the vertical movement along the AD curve times the change in autonomous expenditure. 
C) ratio of the horizontal shift of the AD curve to the change in autonomous expenditure. 
D) ratio of the vertical movement along the AD curve to the change in autonomous expenditure. 
E) ratio of the vertical shift of the AD curve to the change in autonomous expenditure.

Question 6

Consider a simple macro-model with demand-determined output.An exogenous increase in the domestic price level will ________ the real value of the private sector's wealth,which leads to ________ in autonomous consumption and thus ________ shift in the AE function.

Accepted Answer

A) increase; a decrease; a downward 
B) increase; an increase; a downward 
C) increase; an increase; an upward 
D) reduce; a decrease; a downward 
E) reduce; an increase; an upward 
A) increase; a decrease; a downward 
B) increase; an increase; a downward 
C) increase; an increase; an upward 
D) reduce; a decrease; a downward 
E) reduce; an increase; an upward

Question 7

If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand decreases,we expect the AE function to shift to a

Accepted Answer

A) higher level and stay there. 
B) higher level,but then shift part of the way down to its original position as the price level falls. 
C) higher level but then return to its original position as the price level falls. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level falls. 
A) higher level and stay there. 
B) higher level,but then shift part of the way down to its original position as the price level falls. 
C) higher level but then return to its original position as the price level falls. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level falls.

Question 8

FIGURE 23-3
-Refer to Figure 23-3.Suppose the price level in Economy A is above   .Which of the following statements describes what would occur?

Accepted Answer

A) The AD curve would shift to the right until macro equilibrium is reached. 
B) Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at   . 
C) The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at   . 
D) Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium. 
E) The AS curve would shift to the left until macro equilibrium is reached. 
A) The AD curve would shift to the right until macro equilibrium is reached. 
B) Real GDP would be below its equilibrium level which would put downward pressure on the price level until it reaches macro equilibrium at   . 
C) The amount of output supplied by firms is greater than total desired expenditure; excess supply will put downward pressure on the price level until it reaches macro equilibrium at   . 
D) Real GDP would be below its equilibrium level which would put upward pressure on the price level until it reaches macro equilibrium. 
E) The AS curve would shift to the left until macro equilibrium is reached.

Question 9

FIGURE 23-5
-Refer to Figure 23-5.Suppose that an increase in autonomous investment by 40 causes the AD curve to shift to the right,as shown.The simple multiplier is ________ and the multiplier is ________.

Accepted Answer

A) 6; 1.2 
B) 2.8; 1.2 
C) 4; 1.2 
D) 5; 1.5 
E) 4; 3.2 
A) 6; 1.2 
B) 2.8; 1.2 
C) 4; 1.2 
D) 5; 1.5 
E) 4; 3.2

Question 10

A rightward shift in the economy's AS curve implies that

Accepted Answer

A) at any given price level,a lower level of output will be supplied. 
B) at any given price level,a higher level of output will be supplied. 
C) there is a decrease in aggregate supply. 
D) there is a demand shock. 
E) the same output will be produced,but only at a higher price level. 
A) at any given price level,a lower level of output will be supplied. 
B) at any given price level,a higher level of output will be supplied. 
C) there is a decrease in aggregate supply. 
D) there is a demand shock. 
E) the same output will be produced,but only at a higher price level.

Question 11

Which of the following will cause a positive aggregate supply shock?

Accepted Answer

A) an increase in the price of raw materials 
B) a decrease in the price of foreign output 
C) an increase in the price of foreign output 
D) a decrease in the price of oil 
E) a decrease in productivity 
A) an increase in the price of raw materials 
B) a decrease in the price of foreign output 
C) an increase in the price of foreign output 
D) a decrease in the price of oil 
E) a decrease in productivity

Question 12

FIGURE 23-1
-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is   .Now,suppose there is an increase in desired investment and no change in the price level.Which of the following statements describes the likely macroeconomic effects?

Accepted Answer

A) The AE curve shifts up to   ,the AD curve shifts to   ,and a new equilibrium is established at point C,with real GDP at   . 
B) The AE curve shifts down to   ,the AD curve shifts to   ,and a new equilibrium is established at point F,with real GDP at   . 
C) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point E,with real GDP at   . 
D) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point F,with real GDP at   . 
E) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point E,with real GDP at   . 
A) The AE curve shifts up to   ,the AD curve shifts to   ,and a new equilibrium is established at point C,with real GDP at   . 
B) The AE curve shifts down to   ,the AD curve shifts to   ,and a new equilibrium is established at point F,with real GDP at   . 
C) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point E,with real GDP at   . 
D) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point F,with real GDP at   . 
E) The AE curve shifts to   ,the AD curve shifts to   ,and a new equilibrium is established at point E,with real GDP at   .

Question 13

Consider the AD/AS model.Suppose there is an increase in autonomous desired consumption at a given price level.The result is

Accepted Answer

A) the AE curve shifts downward and the AD curve shifts to the left. 
B) the AE curve shifts downward and the AD curve shifts to the right. 
C) the AE curve shifts upward and the AD curve shifts to the left. 
D) the AE curve shifts upward and the AD curve shifts to the right. 
E) no change in either the AE or the AD curve. 
A) the AE curve shifts downward and the AD curve shifts to the left. 
B) the AE curve shifts downward and the AD curve shifts to the right. 
C) the AE curve shifts upward and the AD curve shifts to the left. 
D) the AE curve shifts upward and the AD curve shifts to the right. 
E) no change in either the AE or the AD curve.

Question 14

A leftward shift of the aggregate demand (AD)curve could result from a rise in

Accepted Answer

A) desired exports. 
B) government purchases. 
C) government transfer payments to households. 
D) the net tax rate. 
E) desired investment. 
A) desired exports. 
B) government purchases. 
C) government transfer payments to households. 
D) the net tax rate. 
E) desired investment.

Question 15

Other things being equal,when the price level rises,the real value of money holdings ________; when the domestic price level falls,the real value of money holdings ________.

Accepted Answer

A) rises; falls 
B) falls; is not affected 
C) falls; rises 
D) is not affected; falls 
E) is not affected; rises 
A) rises; falls 
B) falls; is not affected 
C) falls; rises 
D) is not affected; falls 
E) is not affected; rises

Question 16

A leftward shift in the aggregate demand (AD)curve could result from a rise in

Accepted Answer

A) autonomous exports. 
B) autonomous government purchases. 
C) government transfer payments to households. 
D) desired investment. 
E) autonomous desired savings. 
A) autonomous exports. 
B) autonomous government purchases. 
C) government transfer payments to households. 
D) desired investment. 
E) autonomous desired savings.

Question 17

Consider the AD/AS macro model.Suppose there is an increase in aggregate demand and,simultaneously,a decrease in aggregate supply.The result will be a

Accepted Answer

A) rise in real GDP but price level changes will be indeterminate. 
B) rise in real GDP and a rise in the price level. 
C) rise in real GDP and a fall in the price level. 
D) an indeterminate change in real GDP and a rise in the price level. 
E) an indeterminate change in real GDP and a fall in the price level. 
A) rise in real GDP but price level changes will be indeterminate. 
B) rise in real GDP and a rise in the price level. 
C) rise in real GDP and a fall in the price level. 
D) an indeterminate change in real GDP and a rise in the price level. 
E) an indeterminate change in real GDP and a fall in the price level.

Question 18

Other things being equal,an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

Accepted Answer

A) decrease. 
B) increase. 
C) not change since the changes in the wealth of bondholders and bond issuers offset each other. 
D) either increase or decrease depending on other factors. 
E) rise in nominal terms,but fall in real terms. 
A) decrease. 
B) increase. 
C) not change since the changes in the wealth of bondholders and bond issuers offset each other. 
D) either increase or decrease depending on other factors. 
E) rise in nominal terms,but fall in real terms.

Question 19

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

Accepted Answer

A) There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. 
B) There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. 
C) There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. 
D) There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. 
E) There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment. 
A) There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment. 
B) There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment. 
C) There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment. 
D) There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment. 
E) There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.

Question 20

If the economy's AS curve is upward sloping,a negative shock to aggregate demand will result in

Accepted Answer

A) an increase in prices and no change in real GDP. 
B) a decrease in prices but no change in real GDP. 
C) an increase in real GDP and no change in prices. 
D) an increase in both real GDP and prices. 
E) a decrease in both real GDP and prices. 
A) an increase in prices and no change in real GDP. 
B) a decrease in prices but no change in real GDP. 
C) an increase in real GDP and no change in prices. 
D) an increase in both real GDP and prices. 
E) a decrease in both real GDP and prices.

Exam 23: Output and Prices in the Short Run

When the economy's AS curve is positively sloped,the multiplier in the AD/AS model is

A decrease in aggregate supply in the short run is

If the economy's AS curve is completely horizontal,the multiplier in the AD/AS model is

A decrease in aggregate supply in the short run is

Consider the basic AD/AS model in the short run.When there is a change in autonomous desired expenditure,the simple multiplier is equal to the

Consider a simple macro-model with demand-determined output.An exogenous increase in the domestic price level will ________ the real value of the private sector's wealth,which leads to ________ in autonomous consumption and thus ________ shift in the AE function.

If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand decreases,we expect the AE function to shift to a

FIGURE 23-3 -Refer to Figure 23-3.Suppose the price level in Economy A is above .Which of the following statements describes what would occur?

FIGURE 23-5 -Refer to Figure 23-5.Suppose that an increase in autonomous investment by 40 causes the AD curve to shift to the right,as shown.The simple multiplier is ________ and the multiplier is ________.

A rightward shift in the economy's AS curve implies that

Which of the following will cause a positive aggregate supply shock?

Consider the AD/AS model.Suppose there is an increase in autonomous desired consumption at a given price level.The result is

A leftward shift of the aggregate demand (AD)curve could result from a rise in

Other things being equal,when the price level rises,the real value of money holdings ________; when the domestic price level falls,the real value of money holdings ________.

A leftward shift in the aggregate demand (AD)curve could result from a rise in

Consider the AD/AS macro model.Suppose there is an increase in aggregate demand and,simultaneously,a decrease in aggregate supply.The result will be a

Other things being equal,an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private-sector bonds to

If the economy's AS curve is upward sloping,a negative shock to aggregate demand will result in

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Consider a simple macro-model with demand-determined output.An exogenous increase in the domestic price level will the real value of the private sector's wealth,which leads to in autonomous consumption and thus shift in the AE function.

FIGURE 23-5 -Refer to Figure 23-5.Suppose that an increase in autonomous investment by 40 causes the AD curve to shift to the right,as shown.The simple multiplier is and the multiplier is .

Other things being equal,when the price level rises,the real value of money holdings ; when the domestic price level falls,the real value of money holdings .