Question 1

Which of the following will cause a negative aggregate demand shock?

Accepted Answer

A) an increase in the price of raw materials 
B) a decrease in the domestic price level 
C) an increase in the domestic price level 
D) an increase in government expenditures 
E) an increase in tax rates 
A) an increase in the price of raw materials 
B) a decrease in the domestic price level 
C) an increase in the domestic price level 
D) an increase in government expenditures 
E) an increase in tax rates

Question 2

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 the AE curve shifts to   and we move to a new equilibrium level of GDP at   and point F on   .A possible cause of this change in equilibrium is

Accepted Answer

A) an exogenous rise in the price level. 
B) an exogenous fall in the price level. 
C) an increase in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases. 
A) an exogenous rise in the price level. 
B) an exogenous fall in the price level. 
C) an increase in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases.

Question 3

FIGURE 23-3
-Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy A in its current equilibrium position?

Accepted Answer

A) Unit costs are rising,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) Unit costs are rising,but firms are able to produce more output because there is excess capacity in the economy. 
A) Unit costs are rising,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) Unit costs are rising,but firms are able to produce more output because there is excess capacity in the economy.

Question 4

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 the AE curve shifts to   and we move to a new equilibrium level of GDP at   and point A on   .A possible cause of this change in equilibrium is

Accepted Answer

A) an exogenous rise in the price level. 
B) a decrease in desired investment. 
C) a decrease in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases. 
A) an exogenous rise in the price level. 
B) a decrease in desired investment. 
C) a decrease in autonomous consumption. 
D) a decrease in desired net exports. 
E) an increase in government purchases.

Question 5

Consider the following news headline: "World commodity prices rise sharply." Choose the statement below that best describes the likely macroeconomic effects in Canada.(Remember that Canada is both a producer and a consumer of commodities.)

Accepted Answer

A) there is no change in either the AD or the AS curves 
B) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate 
C) the AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP decreases 
D) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP increases 
E) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate 
A) there is no change in either the AD or the AS curves 
B) the AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate 
C) the AD and AS curves both shift to the left; the effect on the price level is indeterminate and real GDP decreases 
D) the AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP increases 
E) the AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate

Question 6

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

Accepted Answer

A) AD curve shifts left. 
B) AS curve shifts upward. 
C) output gap falls. 
D) output gap increases. 
E) AS curve shifts downward. 
A) AD curve shifts left. 
B) AS curve shifts upward. 
C) output gap falls. 
D) output gap increases. 
E) AS curve shifts downward.

Question 7

Which of the following represents a positive aggregate supply shock?

Accepted Answer

A) an outbreak of war among oil-exporting countries 
B) a general labour strike across the country 
C) bad weather which cripples telecommunications for one month 
D) improved computer literacy for the typical worker 
E) an increase in exports 
A) an outbreak of war among oil-exporting countries 
B) a general labour strike across the country 
C) bad weather which cripples telecommunications for one month 
D) improved computer literacy for the typical worker 
E) an increase in exports

Question 8

One of the reasons why the aggregate demand (AD)curve slopes downward is that

Accepted Answer

A) aggregate expenditure increases as the price level rises. 
B) decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate. 
A) aggregate expenditure increases as the price level rises. 
B) decreases in the price level cause increases in private-sector wealth which lead to increases in desired consumption. 
C) increased production results in lower production costs. 
D) when the price level falls firms must be more competitive when output increases. 
E) when the price level falls consumers increase their saving rate.

Question 9

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to increase if

Accepted Answer

A) there is a rise in the price of oil. 
B) the government reduces payroll taxes. 
C) wage increases exceed productivity increases. 
D) wages rise. 
E) wage and price controls are in effect. 
A) there is a rise in the price of oil. 
B) the government reduces payroll taxes. 
C) wage increases exceed productivity increases. 
D) wages rise. 
E) wage and price controls are in effect.

Question 10

The economy's aggregate supply (AS)curve shows the relationship between the price level and the total

Accepted Answer

A) investment that firms wish to make,with input prices given. 
B) investment that firms wish to make,as input prices vary. 
C) output that firms wish to produce and sell,with input prices given. 
D) output that firms wish to produce and sell,as input prices vary. 
E) wealth accumulated by households,with national income given. 
A) investment that firms wish to make,with input prices given. 
B) investment that firms wish to make,as input prices vary. 
C) output that firms wish to produce and sell,with input prices given. 
D) output that firms wish to produce and sell,as input prices vary. 
E) wealth accumulated by households,with national income given.

Question 11

If the economy's AS curve is very steep and there is a negative aggregate demand shock,the result will be

Accepted Answer

A) an increase in the price level and a decrease in real national income. 
B) an increase in both the price level and real national income. 
C) a decrease in the price level with almost no change in real national income. 
D) a decrease in the price level and an increase in real national income. 
E) no change in either price level or output. 
A) an increase in the price level and a decrease in real national income. 
B) an increase in both the price level and real national income. 
C) a decrease in the price level with almost no change in real national income. 
D) a decrease in the price level and an increase in real national income. 
E) no change in either price level or output.

Question 12

Other things being equal,when the domestic price level rises exogenously,

Accepted Answer

A) Canadian goods become more expensive relative to foreign goods. 
B) the net export function shifts upward. 
C) the aggregate expenditure function shifts upward. 
D) imports of foreign goods fall. 
E) the desired investment function shifts upward. 
A) Canadian goods become more expensive relative to foreign goods. 
B) the net export function shifts upward. 
C) the aggregate expenditure function shifts upward. 
D) imports of foreign goods fall. 
E) the desired investment function shifts upward.

Question 13

An exogenous fall in the domestic price level causes an increase in real wealth and

Accepted Answer

A) a fall in desired investment. 
B) a rise in desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift of the net export function. 
E) a fall in government purchases. 
A) a fall in desired investment. 
B) a rise in desired consumption. 
C) a downward shift in the AE curve. 
D) a downward shift of the net export function. 
E) a fall in government purchases.

Question 14

Aggregate demand shocks have a large effect on real GDP and a small 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) when the AS curve is vertical. 
E) if the AD curve is steep. 
A) the steeper the AS curve. 
B) on the downward-sloping portion of the AS curve. 
C) the flatter the AS curve. 
D) when the AS curve is vertical. 
E) if the AD curve is steep.

Question 15

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) improvements in communications technology 
B) a decrease in business confidence that reduces desired investment 
C) a recession in the U.S.that reduces our net exports 
D) a major discovery of new oil reserves that will increase the world supply 
E) a massive drought that reduces agricultural output 
A) improvements in communications technology 
B) a decrease in business confidence that reduces desired investment 
C) a recession in the U.S.that reduces our net exports 
D) a major discovery of new oil reserves that will increase the world supply 
E) a massive drought that reduces agricultural output

Question 16

Other things being equal,an economy with a higher net tax rate will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an economy with a lower net tax rate.

Accepted Answer

A) lower; steeper 
B) higher; flatter 
C) higher; steeper 
D) lower; rightward shift of the 
E) lower; leftward shift of the 
A) lower; steeper 
B) higher; flatter 
C) higher; steeper 
D) lower; rightward shift of the 
E) lower; leftward shift of the

Question 17

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

Accepted Answer

A) downward (to the right),reducing the price level. 
B) downward (to the right)and then return immediately to its original position. 
C) upward (to the left)and then return immediately to its original position. 
D) upward (to the left),increasing the price level. 
E) None of the above; there will no effect on the AS curve. 
A) downward (to the right),reducing the price level. 
B) downward (to the right)and then return immediately to its original position. 
C) upward (to the left)and then return immediately to its original position. 
D) upward (to the left),increasing the price level. 
E) None of the above; there will no effect on the AS curve.

Question 18

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to

Accepted Answer

A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) shift the AS curve to the left. 
D) shift the AS curve to the right. 
E) cause a movement to the left along the AS curve. 
A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) shift the AS curve to the left. 
D) shift the AS curve to the right. 
E) cause a movement to the left along the AS curve.

Question 19

In a macro model with a constant price level,an increase in government purchases will cause the AE curve to shift

Accepted Answer

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

Question 20

Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will

Accepted Answer

A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) shift the AS curve to the left. 
D) shift the AS curve to the right. 
E) cause a movement to the right along the AS curve. 
A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) shift the AS curve to the left. 
D) shift the AS curve to the right. 
E) cause a movement to the right along the AS curve.

Exam 23: Output and Prices in the Short Run

Which of the following will cause a negative aggregate demand shock?

FIGURE 23-3 -Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy A in its current equilibrium position?

Consider the following news headline: "World commodity prices rise sharply." Choose the statement below that best describes the likely macroeconomic effects in Canada.(Remember that Canada is both a producer and a consumer of commodities.)

Consider the basic AD/AS model.When wage rates rise faster than the increase in labour productivity,the

Which of the following represents a positive aggregate supply shock?

One of the reasons why the aggregate demand (AD)curve slopes downward is that

Consider the economy's aggregate supply curve.Other things being equal,unit costs will tend to increase if

The economy's aggregate supply (AS)curve shows the relationship between the price level and the total

If the economy's AS curve is very steep and there is a negative aggregate demand shock,the result will be

Other things being equal,when the domestic price level rises exogenously,

An exogenous fall in the domestic price level causes an increase in real wealth and

Aggregate demand shocks have a large effect on real GDP and a small effect on the price level

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

Other things being equal,an economy with a higher net tax rate will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an economy with a lower net tax rate.

Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift

Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to

In a macro model with a constant price level,an increase in government purchases will cause the AE curve to shift

Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will

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Other things being equal,an economy with a higher net tax rate will have a marginal propensity to spend and thus a AD curve compared to an economy with a lower net tax rate.