Question 1

Other things being equal,a fall in the domestic price level leads to a rise in private-sector wealth and thus

Accepted Answer

A) an increase in the average propensity to save. 
B) an increase in autonomous desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift in net exports. 
E) domestic goods appearing less attractive to foreigners. 
A) an increase in the average propensity to save. 
B) an increase in autonomous desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift in net exports. 
E) domestic goods appearing less attractive to foreigners.

Question 2

Consider the basic AD/AS model.A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium,which in comparison to the original equilibrium,has a price level that is

Accepted Answer

A) higher and a real GDP that is higher. 
B) higher and a real GDP that is lower. 
C) higher and a real GDP that is the same. 
D) lower and a real GDP that is higher. 
E) lower and a real GDP that is lower. 
A) higher and a real GDP that is higher. 
B) higher and a real GDP that is lower. 
C) higher and a real GDP that is the same. 
D) lower and a real GDP that is higher. 
E) lower and a real GDP that is lower.

Question 3

The AD curve relates the price level to which of the following?

Accepted Answer

A) desired aggregate expenditure 
B) desired consumption 
C) the level of real GDP where desired AE equals actual national income 
D) the level of nominal GDP where desired AE equals actual national income 
E) equilibrium savings and wealth. 
A) desired aggregate expenditure 
B) desired consumption 
C) the level of real GDP where desired AE equals actual national income 
D) the level of nominal GDP where desired AE equals actual national income 
E) equilibrium savings and wealth.

Question 4

Suppose the government embarks on an infrastructure program,spending $8 billion on the construction of new roads and bridges.What is the size of the multiplier if the AS curve is vertical?

Accepted Answer

A) 0 
B) greater than 1 
C) less than 1 
D) infinity 
E) insufficient information to solve 
A) 0 
B) greater than 1 
C) less than 1 
D) infinity 
E) insufficient information to solve

Question 5

The economy's aggregate supply (AS)curve shows the relationship between the

Accepted Answer

A) equilibrium real GDP and marginal cost. 
B) equilibrium real GDP and desired consumption. 
C) price level and the marginal propensity to consume (MP
C) . 
D) price level and the total output that firms wish to produce and sell,with technology and input prices held constant. 
E) price level and the total output that firms wish to produce and sell,as technology and input prices vary. 
A) equilibrium real GDP and marginal cost. 
B) equilibrium real GDP and desired consumption. 
C) price level and the marginal propensity to consume (MP
C) . 
D) price level and the total output that firms wish to produce and sell,with technology and input prices held constant. 
E) price level and the total output that firms wish to produce and sell,as technology and input prices vary.

Question 6

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

Accepted Answer

A) an increase in prices but not output. 
B) an increase in output but not prices. 
C) an increase in both output and prices. 
D) a decrease in both output and prices. 
E) a decrease in output and an increase in prices. 
A) an increase in prices but not output. 
B) an increase in output but not prices. 
C) an increase in both output and prices. 
D) a decrease in both output and prices. 
E) a decrease in output and an increase in prices.

Question 7

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.3 and a marginal propensity to import of 0.3.Economy B has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.3.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 8

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

Accepted Answer

A) induced imports. 
B) desired investment. 
C) the net tax rate. 
D) desired saving. 
E) the price level. 
A) induced imports. 
B) desired investment. 
C) the net tax rate. 
D) desired saving. 
E) the price level.

Question 9

A leftward 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 an increase in aggregate supply. 
D) there is a demand shock. 
E) the same output will be produced in equilibrium,but at a lower 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 an increase in aggregate supply. 
D) there is a demand shock. 
E) the same output will be produced in equilibrium,but at a lower price level.

Question 10

Consider the basic AD/AS macro model.The simple multiplier is reflected by the

Accepted Answer

A) horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure. 
B) downward movement along the AD curve in response to a change in autonomous expenditure. 
C) size of the rightward shift of the AD curve in response to a change in autonomous expenditure. 
D) upward movement along the AD curve in response to a change in autonomous expenditure. 
E) size of the leftward shift of the AD curve in response to a rise in autonomous expenditure. 
A) horizontal distance between initial macroeconomic equilibrium and the new intersection of AD and AS in response to a change in autonomous expenditure. 
B) downward movement along the AD curve in response to a change in autonomous expenditure. 
C) size of the rightward shift of the AD curve in response to a change in autonomous expenditure. 
D) upward movement along the AD curve in response to a change in autonomous expenditure. 
E) size of the leftward shift of the AD curve in response to a rise in autonomous expenditure.

Question 11

Consider the nature of macroeconomic equilibrium.If,at a particular price level,the total output demanded is greater than that supplied by producers,then

Accepted Answer

A) the price level will decline toward its equilibrium value. 
B) the price level will rise toward its equilibrium value. 
C) the aggregate demand curve will shift to the left,re-establishing an equilibrium. 
D) the aggregate supply curve will shift to the right,re-establishing an equilibrium. 
E) the aggregate supply curve will shift to the left,re-establishing equilibrium. 
A) the price level will decline toward its equilibrium value. 
B) the price level will rise toward its equilibrium value. 
C) the aggregate demand curve will shift to the left,re-establishing an equilibrium. 
D) the aggregate supply curve will shift to the right,re-establishing an equilibrium. 
E) the aggregate supply curve will shift to the left,re-establishing equilibrium.

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   .The corresponding point on the aggregate demand curve is point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) E. 
A) A. 
B) B. 
C) C. 
D) D. 
E) E.

Question 13

If the economy's AS curve is vertical,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) zero. 
E) negative. 
A) infinitely large. 
B) equal to the simple multiplier. 
C) smaller than the simple multiplier. 
D) zero. 
E) negative.

Question 14

Aggregate supply shocks cause the price level and real GDP to change in

Accepted Answer

A) the same direction with price changing by more than output. 
B) the same direction and by the same amount. 
C) opposite directions with price changing by less than output. 
D) opposite directions but not necessarily by the same amount. 
E) opposite directions but by the same amount. 
A) the same direction with price changing by more than output. 
B) the same direction and by the same amount. 
C) opposite directions with price changing by less than output. 
D) opposite directions but not necessarily by the same amount. 
E) opposite directions but by the same amount.

Question 15

Aggregate demand (AD)shocks have a smaller effect on real GDP and a larger effect on the price level

Accepted Answer

A) the steeper the AS curve. 
B) on the downward-sloping portion of the AS curve. 
C) the flatter the AS curve. 
D) on the upward-sloping portion of the AS curve. 
E) if the AD curve is flatter. 
A) the steeper the AS curve. 
B) on the downward-sloping portion of the AS curve. 
C) the flatter the AS curve. 
D) on the upward-sloping portion of the AS curve. 
E) if the AD curve is flatter.

Question 16

Other things being equal,a rise in the price level will imply ________ in wealth for the bondholder and ________ in the wealth of the issuer of the bond.

Accepted Answer

A) a decline; an increase 
B) a decline; a decline 
C) a decline; no change 
D) an increase; a decline 
E) an increase; an increase 
A) a decline; an increase 
B) a decline; a decline 
C) a decline; no change 
D) an increase; a decline 
E) an increase; an increase

Question 17

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?

Accepted Answer

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

Question 18

Consider the AD/AS model.An increase in government purchases will have no impact on equilibrium real GDP if

Accepted Answer

A) the AS curve slopes upward. 
B) the AS curve is vertical. 
C) the AS curve is horizontal. 
D) the marginal propensity to spend is very small. 
E) the simple multiplier is very small. 
A) the AS curve slopes upward. 
B) the AS curve is vertical. 
C) the AS curve is horizontal. 
D) the marginal propensity to spend is very small. 
E) the simple multiplier is very small.

Question 19

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

Accepted Answer

A) down and the economy will move upward along the AD curve. 
B) down and the economy will move downward along the AD curve. 
C) upward and the economy moves upward along the AD curve. 
D) upward and the economy moves downward along the AD curve. 
E) to the left,as does the AD curve. 
A) down and the economy will move upward along the AD curve. 
B) down and the economy will move downward along the AD curve. 
C) upward and the economy moves upward along the AD curve. 
D) upward and the economy moves downward along the AD curve. 
E) to the left,as does the AD curve.

Question 20

FIGURE 23-2
-Refer to Figure 23-2.Which of the following events could cause the upward shift of the AS curve?

Accepted Answer

A) a decrease in the price of raw materials 
B) a decrease in the world supply of oil as a result of a major hurricane 
C) improved quality of the national education system 
D) rapid technological advances in mass production 
E) an increase in consumption 
A) a decrease in the price of raw materials 
B) a decrease in the world supply of oil as a result of a major hurricane 
C) improved quality of the national education system 
D) rapid technological advances in mass production 
E) an increase in consumption

Exam 23: Output and Prices in the Short Run

Other things being equal,a fall in the domestic price level leads to a rise in private-sector wealth and thus

Consider the basic AD/AS model.A rise in an input price like the wage rate would be expected to create a new macroeconomic equilibrium,which in comparison to the original equilibrium,has a price level that is

The AD curve relates the price level to which of the following?

Suppose the government embarks on an infrastructure program,spending $8 billion on the construction of new roads and bridges.What is the size of the multiplier if the AS curve is vertical?

The economy's aggregate supply (AS)curve shows the relationship between the

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

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

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

Consider the basic AD/AS macro model.The simple multiplier is reflected by the

Consider the nature of macroeconomic equilibrium.If,at a particular price level,the total output demanded is greater than that supplied by producers,then

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 .The corresponding point on the aggregate demand curve is point

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

Aggregate supply shocks cause the price level and real GDP to change in

Aggregate demand (AD)shocks have a smaller effect on real GDP and a larger effect on the price level

Other things being equal,a rise in the price level will imply ________ in wealth for the bondholder and ________ in the wealth of the issuer of the bond.

Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?

Consider the AD/AS model.An increase in government purchases will have no impact on equilibrium real GDP if

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

FIGURE 23-2 -Refer to Figure 23-2.Which of the following events could cause the upward shift of the AS curve?

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Other things being equal,a rise in the price level will imply in wealth for the bondholder and in the wealth of the issuer of the bond.