Question 1

Which of the following events would cause the AE function to shift upwards in a parallel way?

Accepted Answer

A) an increase in the MPC 
B) a decrease in the net tax rate 
C) a decrease in the business confidence of firms 
D) a decrease in foreign income 
E) a decrease in the aggregate price level 
A) an increase in the MPC 
B) a decrease in the net tax rate 
C) a decrease in the business confidence of firms 
D) a decrease in foreign income 
E) a decrease in the aggregate price level

Question 2

FIGURE 23-5
-Refer to Figure 23-5.Suppose that an increase in autonomous investment caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 5,then what is the value of the multiplier?

Accepted Answer

A) 1.2 
B) 1.5 
C) 4.0 
D) 5.0 
E) not enough information to know 
A) 1.2 
B) 1.5 
C) 4.0 
D) 5.0 
E) not enough information to know

Question 3

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that

Accepted Answer

A) technology and the prices of all factors of production remain constant. 
B) unit costs remain constant. 
C) all firms are price takers. 
D) all firms are price setters. 
E) technology and the prices of all factors of production do not remain constant. 
A) technology and the prices of all factors of production remain constant. 
B) unit costs remain constant. 
C) all firms are price takers. 
D) all firms are price setters. 
E) technology and the prices of all factors of production do not remain constant.

Question 4

Over the horizontal range of the economy's AS curve (assuming such a range exists),a rightward shift of the AD curve will result in

Accepted Answer

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

Question 5

FIGURE 23-5
-Refer to Figure 23-5.Suppose that an increase in government purchases caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 4,then what is the value of the multiplier?

Accepted Answer

A) 1.2 
B) 1.4 
C) 4 
D) 2.8 
E) 3.2 
A) 1.2 
B) 1.4 
C) 4 
D) 2.8 
E) 3.2

Question 6

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because

Accepted Answer

A) of increasing factor prices. 
B) of increasing productivity of the factors of production. 
C) of diminishing marginal productivity of the factors of production. 
D) of rising competition among price setters. 
E) of excess capacity at higher levels of output. 
A) of increasing factor prices. 
B) of increasing productivity of the factors of production. 
C) of diminishing marginal productivity of the factors of production. 
D) of rising competition among price setters. 
E) of excess capacity at higher levels of output.

Question 7

In a macro model with a constant price level,an increase in autonomous desired consumption will cause the AE curve to shift

Accepted Answer

A) downward and the AD curve to shift to the left. 
B) downward and the AD curve to shift to the right. 
C) upward and the AD curve to shift to the left. 
D) upward and the AD curve to shift to the right. 
E) upward and a movement to the right along the AD curve. 
A) downward and the AD curve to shift to the left. 
B) downward and the AD curve to shift to the right. 
C) upward and the AD curve to shift to the left. 
D) upward and the AD curve to shift to the right. 
E) upward and a movement to the right along the AD curve.

Question 8

Other things being equal,the economy's AS curve will shift upward in the short run if there is

Accepted Answer

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

Question 9

If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand increases,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 rises. 
C) higher level but then return to its original position as the price level rises. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level rises. 
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 rises. 
C) higher level but then return to its original position as the price level rises. 
D) lower level and stay there. 
E) lower level,but then return to its original position as the price level rises.

Question 10

Other things being equal,as the price level rises exogenously,the aggregate expenditure (AE)function shifts

Accepted Answer

A) down and the economy will move upward to the left along the AD curve. 
B) down and the economy will move downward to the right along the AD curve. 
C) upward and the economy moves upward to the left along the AD curve. 
D) upward and the economy moves downward to the right along the AD curve. 
E) to the right and the AD curve will also shift to the right. 
A) down and the economy will move upward to the left along the AD curve. 
B) down and the economy will move downward to the right along the AD curve. 
C) upward and the economy moves upward to the left along the AD curve. 
D) upward and the economy moves downward to the right along the AD curve. 
E) to the right and the AD curve will also shift to the right.

Question 11

The concept of "demand-determined output" requires ________ to remain constant as output increases.

Accepted Answer

A) technology of production 
B) government purchases 
C) firms' unit costs 
D) labour productivity 
E) the ratio of price setters to price takers 
A) technology of production 
B) government purchases 
C) firms' unit costs 
D) labour productivity 
E) the ratio of price setters to price takers

Question 12

Consider the basic AD/AS model.If firms' unit costs remained constant as firms increased their output levels,this would lead to a

Accepted Answer

A) vertical AD curve. 
B) horizontal AD curve. 
C) vertical AS curve. 
D) horizontal AS curve. 
E) horizontal AE curve. 
A) vertical AD curve. 
B) horizontal AD curve. 
C) vertical AS curve. 
D) horizontal AS curve. 
E) horizontal AE curve.

Question 13

Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the AD curve?

Accepted Answer

A) an increase in the business confidence of firms 
B) a reduction in government purchases 
C) an increase in the MPC 
D) a decrease in the price level 
E) an increase in the price level 
A) an increase in the business confidence of firms 
B) a reduction in government purchases 
C) an increase in the MPC 
D) a decrease in the price level 
E) an increase in the price level

Question 14

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?

Accepted Answer

A) the price level on the vertical axis and MPC on the horizontal axis 
B) national income on the vertical axis and total desired consumption on the horizontal axis 
C) the price level on the vertical axis and real GDP on the horizontal axis 
D) national income on the vertical axis and marginal cost on the horizontal axis 
E) the price level on the vertical axis and real disposable income on the horizontal axis 
A) the price level on the vertical axis and MPC on the horizontal axis 
B) national income on the vertical axis and total desired consumption on the horizontal axis 
C) the price level on the vertical axis and real GDP on the horizontal axis 
D) national income on the vertical axis and marginal cost on the horizontal axis 
E) the price level on the vertical axis and real disposable income on the horizontal axis

Question 15

Other things being equal,a higher marginal propensity to spend will lead to a ________ AD curve.

Accepted Answer

A) flatter 
B) steeper 
C) rightward shift of the 
D) leftward shift of the 
A) flatter 
B) steeper 
C) rightward shift of the 
D) leftward shift of the

Question 16

Which of the following would likely cause a downward shift in the AE curve and a movement upward along the AD curve?

Accepted Answer

A) a decrease in the business confidence of firms 
B) a reduction in government purchases 
C) a decrease in the MPC 
D) a decrease in the price level 
E) an increase in the price level 
A) a decrease in the business confidence of firms 
B) a reduction in government purchases 
C) a decrease in the MPC 
D) a decrease in the price level 
E) an increase in the price level

Question 17

Suppose the economy is hit by a shock and we observe that the price level has decreased whereas real GDP has increased.We can conclude that this shock was

Accepted Answer

A) a positive AD shock. 
B) a negative AD shock. 
C) a positive AS shock. 
D) a negative AS shock. 
E) a negative technology shock. 
A) a positive AD shock. 
B) a negative AD shock. 
C) a positive AS shock. 
D) a negative AS shock. 
E) a negative technology shock.

Question 18

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly.

Accepted Answer

A) equilibrium output; unit costs 
B) profit-maximizing output; total costs 
C) capacity; unit costs 
D) equilibrium output; total costs 
E) equilibrium output; average costs 
A) equilibrium output; unit costs 
B) profit-maximizing output; total costs 
C) capacity; unit costs 
D) equilibrium output; total costs 
E) equilibrium output; average costs

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) The AD curve shifts farther to the left in Economy B than Economy A. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy A. 
A) The AD curve shifts farther to the left in Economy B than Economy A. 
B) The AD curve shifts farther to the right in Economy A than Economy B. 
C) The AD curve shifts to the left the same amount in both economies. 
D) The AD curve shifts to the right the same amount in both economies. 
E) The simple multiplier is larger in Economy A.

Question 20

If the AS curve is vertical and there is a decrease in aggregate demand,the result is

Accepted Answer

A) a decrease in the price level with no change in real GDP. 
B) an equal decrease in national income. 
C) an increase in the price level. 
D) an increase in national income. 
E) no change in either price level or real GDP. 
A) a decrease in the price level with no change in real GDP. 
B) an equal decrease in national income. 
C) an increase in the price level. 
D) an increase in national income. 
E) no change in either price level or real GDP.

Exam 23: Output and Prices in the Short Run

Which of the following events would cause the AE function to shift upwards in a parallel way?

FIGURE 23-5 -Refer to Figure 23-5.Suppose that an increase in autonomous investment caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 5,then what is the value of the multiplier?

The aggregate supply curve relates the price level to the quantity of output that firms would like to produce and sell,given the assumption that

Over the horizontal range of the economy's AS curve (assuming such a range exists),a rightward shift of the AD curve will result in

FIGURE 23-5 -Refer to Figure 23-5.Suppose that an increase in government purchases caused the AD curve to shift to the right,as shown.If the simple multiplier in this model is 4,then what is the value of the multiplier?

The aggregate supply curve is usually assumed to get progressively steeper at relatively higher levels of output because

In a macro model with a constant price level,an increase in autonomous desired consumption will cause the AE curve to shift

Other things being equal,the economy's AS curve will shift upward in the short run if there is

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

Other things being equal,as the price level rises exogenously,the aggregate expenditure (AE)function shifts

The concept of "demand-determined output" requires ________ to remain constant as output increases.

Consider the basic AD/AS model.If firms' unit costs remained constant as firms increased their output levels,this would lead to a

Which of the following would likely cause an upward parallel shift in the AE curve and a rightward shift in the AD curve?

The aggregate supply (AS)curve is drawn with which variables on the axes of the graph?

Other things being equal,a higher marginal propensity to spend will lead to a ________ AD curve.

Which of the following would likely cause a downward shift in the AE curve and a movement upward along the AD curve?

Suppose the economy is hit by a shock and we observe that the price level has decreased whereas real GDP has increased.We can conclude that this shock was

The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________ and ________ are rising rapidly.

If the AS curve is vertical and there is a decrease in aggregate demand,the result is

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The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above and are rising rapidly.