Question 1

Consider the AD/AS model in which the price level varies.In this case,the multiplier is ________ the simple multiplier.

Accepted Answer

A) larger than 
B) smaller than 
C) definitionally the same as 
D) not comparable to 
E) equal to 
A) larger than 
B) smaller than 
C) definitionally the same as 
D) not comparable to 
E) equal to

Question 2

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

Accepted Answer

A) accumulate inventories. 
B) charge a higher price sufficient to cover their higher unit costs. 
C) experience rising factor prices. 
D) produce less in response to falling profits. 
E) increase output at unchanged unit costs. 
A) accumulate inventories. 
B) charge a higher price sufficient to cover their higher unit costs. 
C) experience rising factor prices. 
D) produce less in response to falling profits. 
E) increase output at unchanged unit costs.

Question 3

FIGURE 23-3
-Refer to Figure 23-3.Which of the two economies,A or B,will experience more volatile fluctuations in national income in response to aggregate demand shocks?

Accepted Answer

A) Economies A and B will experience similar volatility because the slopes of the AD curves are the same. 
B) Economy A because the large fluctuations in the price level lead to large fluctuations in national income. 
C) Economy A because the multiplier is much larger than in Economy B. 
D) Economy B because the multiplier is much smaller than in Economy A. 
E) Economy B because output is purely demand determined,and there is no offsetting effect from a price level increase. 
A) Economies A and B will experience similar volatility because the slopes of the AD curves are the same. 
B) Economy A because the large fluctuations in the price level lead to large fluctuations in national income. 
C) Economy A because the multiplier is much larger than in Economy B. 
D) Economy B because the multiplier is much smaller than in Economy A. 
E) Economy B because output is purely demand determined,and there is no offsetting effect from a price level increase.

Question 4

The economy's aggregate supply curve is drawn under two main assumptions.They are

Accepted Answer

A) firms' unit costs are constant; prices of all factors of production are constant. 
B) firms' unit costs are constant; the state of technology is constant. 
C) firms will produce more output only if prices rise; technology improves only if prices rise. 
D) the prices of all factors of production are constant; the state of technology is constant. 
E) the prices of all factors of production are constant; productivity improves as the price level rises. 
A) firms' unit costs are constant; prices of all factors of production are constant. 
B) firms' unit costs are constant; the state of technology is constant. 
C) firms will produce more output only if prices rise; technology improves only if prices rise. 
D) the prices of all factors of production are constant; the state of technology is constant. 
E) the prices of all factors of production are constant; productivity improves as the price level rises.

Question 5

Other things being equal,a rise in the domestic price level

Accepted Answer

A) causes a decrease in real saving. 
B) lowers the real value of all assets denominated in money units. 
C) makes domestic goods more attractive to foreigners. 
D) makes foreign goods less attractive to domestic residents. 
E) raises the real burden of repaying a fixed money value debt. 
A) causes a decrease in real saving. 
B) lowers the real value of all assets denominated in money units. 
C) makes domestic goods more attractive to foreigners. 
D) makes foreign goods less attractive to domestic residents. 
E) raises the real burden of repaying a fixed money value debt.

Question 6

Consider the relationship between the AE curve and the AD curve.A decline in the amount of desired net exports at each level of national income

Accepted Answer

A) shifts the AD curve to the right. 
B) shifts the AD curve to the left. 
C) causes a movement up along the AD curve. 
D) causes a movement down along the AD curve. 
E) causes an upward shift of the AE curve but no movement of the AD curve. 
A) shifts the AD curve to the right. 
B) shifts the AD curve to the left. 
C) causes a movement up along the AD curve. 
D) causes a movement down along the AD curve. 
E) causes an upward shift of the AE curve but no movement of the AD curve.

Question 7

The economy's AS curve will shift upward in the short run if there is

Accepted Answer

A) an improvement in technology. 
B) a decrease in the cost of capital. 
C) an increase in the price level. 
D) a decrease in nominal wages. 
E) an increase in nominal wages. 
A) an improvement in technology. 
B) a decrease in the cost of capital. 
C) an increase in the price level. 
D) a decrease in nominal wages. 
E) an increase in nominal wages.

Question 8

In building a macro model with an AS curve,it is assumed that producers will

Accepted Answer

A) increase prices without changing their output. 
B) decrease their prices without changing output. 
C) decrease their prices when they expand output. 
D) produce as much as possible at the existing price level. 
E) produce more output only if prices rise. 
A) increase prices without changing their output. 
B) decrease their prices without changing output. 
C) decrease their prices when they expand output. 
D) produce as much as possible at the existing price level. 
E) produce more output only if prices rise.

Question 9

Consider the basic AD/AS model.Real GDP is demand determined along the

Accepted Answer

A) upward-sloping portion of the AS curve. 
B) downward-sloping portion of the AS curve. 
C) vertical portion of the AS curve. 
D) horizontal portion of the AS curve. 
E) None of the above - real GDP cannot be demand determined. 
A) upward-sloping portion of the AS curve. 
B) downward-sloping portion of the AS curve. 
C) vertical portion of the AS curve. 
D) horizontal portion of the AS curve. 
E) None of the above - real GDP cannot be demand determined.

Question 10

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

Accepted Answer

A) in the same direction. 
B) in the opposite direction. 
C) by the same amount in the same direction. 
D) by the same amount in the opposite direction. 
E) by a lesser amount in either direction. 
A) in the same direction. 
B) in the opposite direction. 
C) by the same amount in the same direction. 
D) by the same amount in the opposite direction. 
E) by a lesser amount in either direction.

Question 11

Macroeconomic equilibrium is described as the combination of

Accepted Answer

A) potential output and price level that is on both the AD curve and AS curve. 
B) real GDP and price level that is on both the AD curve and 45-degree line. 
C) real GDP and price level that is on both the AD curve and AS curve. 
D) all individual demand curves and all individual supply curves. 
E) all individual demand curves and potential GDP. 
A) potential output and price level that is on both the AD curve and AS curve. 
B) real GDP and price level that is on both the AD curve and 45-degree line. 
C) real GDP and price level that is on both the AD curve and AS curve. 
D) all individual demand curves and all individual supply curves. 
E) all individual demand curves and potential GDP.

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 exogenous rise in the price level to   .Which of the following statements describes the likely macroeconomic effects?

Accepted Answer

A) The AE curve shifts to   ,a new equilibrium is established at point U,and the AD curve shifts from   to   ,and equilibrium from point B to point D. 
B) The AE curve shifts to   ,a new equilibrium is established at point W,and the economy moves from point B to point C along   . 
C) The AE curve shifts to   ,a new equilibrium is established at point U,and the economy moves from point B to point A along   . 
D) The AE curve shifts to   ,a new equilibrium is established at point W,and the AD curve shifts from   to   ,and equilibrium moves from point B to point D. 
A) The AE curve shifts to   ,a new equilibrium is established at point U,and the AD curve shifts from   to   ,and equilibrium from point B to point D. 
B) The AE curve shifts to   ,a new equilibrium is established at point W,and the economy moves from point B to point C along   . 
C) The AE curve shifts to   ,a new equilibrium is established at point U,and the economy moves from point B to point A along   . 
D) The AE curve shifts to   ,a new equilibrium is established at point W,and the AD curve shifts from   to   ,and equilibrium moves from point B to point D.

Question 13

Consider a simple macro model with demand-determined output.An exogenous increase in the domestic price level will

Accepted Answer

A) shift both the net export function and the AE curve upward. 
B) shift the net export function upward and the AE curve downward. 
C) shift both the net export function and the AE curve downward. 
D) shift the net export function downward and the AE curve upward. 
E) pivot the net export function and the AE curve upward. 
A) shift both the net export function and the AE curve upward. 
B) shift the net export function upward and the AE curve downward. 
C) shift both the net export function and the AE curve downward. 
D) shift the net export function downward and the AE curve upward. 
E) pivot the net export function and the AE curve upward.

Question 14

FIGURE 23-2
-Refer to Figure 23-2.The shift from   to   shown in the diagram is referred to as a(n)

Accepted Answer

A) increase in aggregate supply. 
B) increase in unit costs. 
C) negative aggregate supply shock. 
D) positive aggregate supply shock. 
E) decrease in unit costs. 
A) increase in aggregate supply. 
B) increase in unit costs. 
C) negative aggregate supply shock. 
D) positive aggregate supply shock. 
E) decrease in unit costs.

Question 15

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the price level causes a

Accepted Answer

A) shift in both the AE and AD curves. 
B) movement along the AE curve and a shift in the AD curve. 
C) movement along both the AE and AD curves. 
D) shift in the AE curve and a movement along the AD curve. 
E) movement along AE but does not affect the AD curve. 
A) shift in both the AE and AD curves. 
B) movement along the AE curve and a shift in the AD curve. 
C) movement along both the AE and AD curves. 
D) shift in the AE curve and a movement along the AD curve. 
E) movement along AE but does not affect the AD curve.

Question 16

A movement along the economy's AS curve could be caused by a change in

Accepted Answer

A) labour productivity. 
B) the cost of capital. 
C) the price level,caused in turn by an AD shock. 
D) technology. 
E) the wage rate. 
A) labour productivity. 
B) the cost of capital. 
C) the price level,caused in turn by an AD shock. 
D) technology. 
E) the wage rate.

Question 17

Other things being equal,the economy's AS curve will shift downward if there is

Accepted Answer

A) a decrease in labour productivity. 
B) a decrease in the cost of capital inputs. 
C) a decrease in the price level. 
D) an increase in the price level. 
E) an increase in nominal wages. 
A) a decrease in labour productivity. 
B) a decrease in the cost of capital inputs. 
C) a decrease in the price level. 
D) an increase in the price level. 
E) an increase in nominal wages.

Question 18

Consider the basic AD/AS macro model.A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level

Accepted Answer

A) and real GDP are higher than in the initial equilibrium. 
B) and real GDP are lower than in the initial equilibrium. 
C) is lower and real GDP higher than in the initial equilibrium. 
D) is higher and real GDP remained the same as in the initial equilibrium. 
E) is higher and real GDP lower than in the initial equilibrium. 
A) and real GDP are higher than in the initial equilibrium. 
B) and real GDP are lower than in the initial equilibrium. 
C) is lower and real GDP higher than in the initial equilibrium. 
D) is higher and real GDP remained the same as in the initial equilibrium. 
E) is higher and real GDP lower than in the initial equilibrium.

Question 19

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

Accepted Answer

A) a person with a 25-year home mortgage 
B) a person with cash under the mattress 
C) a person with deposits in a bank savings account 
D) a person with a government bond that promises to pay the holder $1000,5 years hence 
E) a person with a corporate bond that promises to repay the face value of the bond in the future 
A) a person with a 25-year home mortgage 
B) a person with cash under the mattress 
C) a person with deposits in a bank savings account 
D) a person with a government bond that promises to pay the holder $1000,5 years hence 
E) a person with a corporate bond that promises to repay the face value of the bond in the future

Question 20

FIGURE 23-3
-Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy B?

Accepted Answer

A) Unit costs are rising rapidly,but firms can produce more output by employing standby capacity and overtime labour,for example,with no increase in the price level. 
B) Firms are producing well below their capacity and are willing to produce more only if prices rise. 
C) Unit costs are rising rapidly as firms are producing beyond their capacity.Firms will produce more only if prices increase. 
D) Firms are producing well below their capacity and are willing to produce more output with no increase in price. 
E) Firms are not able to produce more output because there is no excess capacity in the economy. 
A) Unit costs are rising rapidly,but firms can produce more output by employing standby capacity and overtime labour,for example,with no increase in the price level. 
B) Firms are producing well below their capacity and are willing to produce more only if prices rise. 
C) Unit costs are rising rapidly as firms are producing beyond their capacity.Firms will produce more only if prices increase. 
D) Firms are producing well below their capacity and are willing to produce more output with no increase in price. 
E) Firms are not able to produce more output because there is no excess capacity in the economy.

Exam 23: Output and Prices in the Short Run

Consider the AD/AS model in which the price level varies.In this case,the multiplier is ________ the simple multiplier.

In the short run,the aggregate supply curve has a positive slope because,as the price level rises,producers can

FIGURE 23-3 -Refer to Figure 23-3.Which of the two economies,A or B,will experience more volatile fluctuations in national income in response to aggregate demand shocks?

The economy's aggregate supply curve is drawn under two main assumptions.They are

Other things being equal,a rise in the domestic price level

Consider the relationship between the AE curve and the AD curve.A decline in the amount of desired net exports at each level of national income

The economy's AS curve will shift upward in the short run if there is

In building a macro model with an AS curve,it is assumed that producers will

Consider the basic AD/AS model.Real GDP is demand determined along the

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the domestic price level changes equilibrium real GDP

Macroeconomic equilibrium is described as the combination of

Consider a simple macro model with demand-determined output.An exogenous increase in the domestic price level will

FIGURE 23-2 -Refer to Figure 23-2.The shift from to shown in the diagram is referred to as a(n)

Consider a simple macro model with a given price level and demand-determined output.An exogenous change in the price level causes a

A movement along the economy's AS curve could be caused by a change in

Other things being equal,the economy's AS curve will shift downward if there is

Consider the basic AD/AS macro model.A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level

Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

FIGURE 23-3 -Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy B?

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