Question 1

An example of an negative inflation shock is:

Accepted Answer

A) an increase in interest rates. 
B) an increase in government purchases. 
C) a significant rise in oil prices. 
D) a tax increase. 
A) an increase in interest rates. 
B) an increase in government purchases. 
C) a significant rise in oil prices. 
D) a tax increase.

Question 2

A sudden change in the normal behavior of inflation,unrelated to the nation's output gap is called:

Accepted Answer

A) short-run equilibrium. 
B) long-run equilibrium. 
C) an inflation shock. 
D) inflation inertia. 
A) short-run equilibrium. 
B) long-run equilibrium. 
C) an inflation shock. 
D) inflation inertia.

Question 3

The aggregate demand curve shifts when there are changes in:

Accepted Answer

A) the inflation rate. 
B) planned spending that are not caused by changes in output or the inflation rate. 
C) planned spending that are caused only by changes in output or the inflation rate. 
D) real GDP. 
A) the inflation rate. 
B) planned spending that are not caused by changes in output or the inflation rate. 
C) planned spending that are caused only by changes in output or the inflation rate. 
D) real GDP.

Question 4

When actual output equals potential output and the inflation rate is equal to the expected rate of inflation,the economy is said to be in ______ equilibrium.

Accepted Answer

A) long-run 
B) recessionary 
C) expansionary 
D) short-run 
A) long-run 
B) recessionary 
C) expansionary 
D) short-run

Question 5

When actual output equals potential output,there is ______ output gap and the inflation rate will ____.

Accepted Answer

A) an expansionary;exceed the expected rate of inflation 
B) an expansionary;be lower than the expected rate of inflation 
C) no;be equal to the expected rate of inflation 
D) a recessionary;exceed the expected rate of inflation 
A) an expansionary;exceed the expected rate of inflation 
B) an expansionary;be lower than the expected rate of inflation 
C) no;be equal to the expected rate of inflation 
D) a recessionary;exceed the expected rate of inflation

Question 6

When the inflation rate decreases,PAE ______,which in turn causes Y to ______ because of ______.

Accepted Answer

A) rises;rise;the income-expenditure multiplier 
B) rises;fall;the income-expenditure multiplier 
C) falls;rise;the wealth effect 
D) falls;fall;the wealth effect 
A) rises;rise;the income-expenditure multiplier 
B) rises;fall;the income-expenditure multiplier 
C) falls;rise;the wealth effect 
D) falls;fall;the wealth effect

Question 7

When actual output is less than potential output,there is ______ output gap and the inflation rate will ____.

Accepted Answer

A) an expansionary;exceed the expected rate of inflation 
B) an expansionary;be lower than the expected rate of inflation 
C) a recessionary;be lower than the expected rate of inflation 
D) a recessionary;exceed the expected rate of inflation 
A) an expansionary;exceed the expected rate of inflation 
B) an expansionary;be lower than the expected rate of inflation 
C) a recessionary;be lower than the expected rate of inflation 
D) a recessionary;exceed the expected rate of inflation

Question 8

Firms that face menu costs react to a sustained increase in demand by:

Accepted Answer

A) increasing output and then raising the price at which they are willing to sell their output. 
B) charging higher prices,without necessarily increasing the amount of output they are willing to sell. 
C) charging lower prices,while simultaneously increasing the amount of output they are willing to sell. 
D) increasing output and then reducing the price at which they are willing to sell their output. 
A) increasing output and then raising the price at which they are willing to sell their output. 
B) charging higher prices,without necessarily increasing the amount of output they are willing to sell. 
C) charging lower prices,while simultaneously increasing the amount of output they are willing to sell. 
D) increasing output and then reducing the price at which they are willing to sell their output.

Question 9

Firms suddenly becoming pessimistic about future business prospects is an example of a ______ demand shock,which would shift the AD curve to the ______.

Accepted Answer

A) negative;left 
B) positive;left 
C) negative;right 
D) positive;right 
A) negative;left 
B) positive;left 
C) negative;right 
D) positive;right

Question 10

Technological improvements:

Accepted Answer

A) decrease aggregate demand. 
B) increase aggregate demand. 
C) decrease aggregate supply. 
D) increase aggregate supply. 
A) decrease aggregate demand. 
B) increase aggregate demand. 
C) decrease aggregate supply. 
D) increase aggregate supply.

Question 11

Starting from potential output,if consumer confidence increases and consumers decide to spend more,then this will generate a(n)_____ gap and inflation will _____.

Accepted Answer

A) recessionary;increase 
B) recessionary;decrease 
C) expansionary;decrease 
D) expansionary;increase 
A) recessionary;increase 
B) recessionary;decrease 
C) expansionary;decrease 
D) expansionary;increase

Question 12

For a given inflation rate,if a stock market crash makes consumers less willing to spend,then the ______ shifts _____.

Accepted Answer

A) aggregate demand curve;right 
B) aggregate demand curve;left 
C) aggregate supply curve;upward 
D) aggregate supply curve;downward 
A) aggregate demand curve;right 
B) aggregate demand curve;left 
C) aggregate supply curve;upward 
D) aggregate supply curve;downward

Question 13

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Accepted Answer

A) the inflation gap. 
B) inflation expectations. 
C) inflation inertia. 
D) potential inflation. 
A) the inflation gap. 
B) inflation expectations. 
C) inflation inertia. 
D) potential inflation.

Question 14

Starting from long-run equilibrium,a negative inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) higher;potential 
D) lower;lower 
A) higher;higher 
B) higher;lower 
C) higher;potential 
D) lower;lower

Question 15

The aggregate demand curve shows the relationship between planned spending and the ______.

Accepted Answer

A) nominal interest rate 
B) real interest rate 
C) unemployment rate 
D) inflation rate 
A) nominal interest rate 
B) real interest rate 
C) unemployment rate 
D) inflation rate

Question 16

The economy is in short-run equilibrium:

Accepted Answer

A) when the AD and AS curves intersect at potential output Y*. 
B) when the AD and AS curves intersect at a level of real GDP that is above or below Y*. 
C) when the AD and AS curves become vertical. 
D) at the peak of the business cycle. 
A) when the AD and AS curves intersect at potential output Y*. 
B) when the AD and AS curves intersect at a level of real GDP that is above or below Y*. 
C) when the AD and AS curves become vertical. 
D) at the peak of the business cycle.

Question 17

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation.

Accepted Answer

A) high;high 
B) high;low 
C) low;low 
D) low;high 
A) high;high 
B) high;low 
C) low;low 
D) low;high

Question 18

A leftward shift of the AS curve indicates:

Accepted Answer

A) a decrease in aggregate supply. 
B) an increase in aggregate supply. 
C) a decrease in potential GDP. 
D) an increase in potential GDP. 
A) a decrease in aggregate supply. 
B) an increase in aggregate supply. 
C) a decrease in potential GDP. 
D) an increase in potential GDP.

Question 19

Inflation inertia is the result of the behavior of ____ and the existence of ______.

Accepted Answer

A) the central bank;automatic stabilizers 
B) real and nominal interest rates;an output gap 
C) autonomous aggregate demand;the Fed's policy reaction function 
D) inflation expectations;long-term wage and price contracts 
A) the central bank;automatic stabilizers 
B) real and nominal interest rates;an output gap 
C) autonomous aggregate demand;the Fed's policy reaction function 
D) inflation expectations;long-term wage and price contracts

Question 20

Starting from long-run equilibrium,a large decrease in government purchases will result in a(n)______ gap in the short-run and ____ inflation and ____ output in the long-run

Accepted Answer

A) expansionary;higher;potential 
B) recessionary;lower;potential 
C) expansionary;higher;higher 
D) recessionary;higher;potential 
A) expansionary;higher;potential 
B) recessionary;lower;potential 
C) expansionary;higher;higher 
D) recessionary;higher;potential

Exam 24: Aggregate Demand, Aggregate Supply, and Business Cycles

An example of an negative inflation shock is:

A sudden change in the normal behavior of inflation,unrelated to the nation's output gap is called:

The aggregate demand curve shifts when there are changes in:

When actual output equals potential output and the inflation rate is equal to the expected rate of inflation,the economy is said to be in ______ equilibrium.

When actual output equals potential output,there is ______ output gap and the inflation rate will ____.

When the inflation rate decreases,PAE ______,which in turn causes Y to ______ because of ______.

When actual output is less than potential output,there is ______ output gap and the inflation rate will ____.

Firms that face menu costs react to a sustained increase in demand by:

Firms suddenly becoming pessimistic about future business prospects is an example of a ______ demand shock,which would shift the AD curve to the ______.

Technological improvements:

Starting from potential output,if consumer confidence increases and consumers decide to spend more,then this will generate a(n)_____ gap and inflation will _____.

For a given inflation rate,if a stock market crash makes consumers less willing to spend,then the ______ shifts _____.

The tendency for inflation to change relatively slowly from year to year in industrial countries is called:

Starting from long-run equilibrium,a negative inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

The aggregate demand curve shows the relationship between planned spending and the ______.

The economy is in short-run equilibrium:

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation.

A leftward shift of the AS curve indicates:

Inflation inertia is the result of the behavior of ____ and the existence of ______.

Starting from long-run equilibrium,a large decrease in government purchases will result in a(n)______ gap in the short-run and ____ inflation and ____ output in the long-run

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

Externalities and Property Rights

The Economics of Information

Labor Markets, Poverty, and Income Distribution

The Environment, Health, and Safety

Public Goods and Tax Policy

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Monetary Policy and the Federal Reserve

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

When actual output equals potential output,there is __ output gap and the inflation rate will .

When the inflation rate decreases,PAE ,which in turn causes Y to because of __.

When actual output is less than potential output,there is __ output gap and the inflation rate will .

Firms suddenly becoming pessimistic about future business prospects is an example of a demand shock,which would shift the AD curve to the .

Starting from potential output,if consumer confidence increases and consumers decide to spend more,then this will generate a(n)_ gap and inflation will _.

For a given inflation rate,if a stock market crash makes consumers less willing to spend,then the __ shifts _.

Starting from long-run equilibrium,a negative inflation shock results in a short-run equilibrium with _ inflation and __ output.

A low rate of expected inflation tends to lead to a _ rate of actual inflation and a high rate of expected inflation tends to lead to a __ rate of actual inflation.

Inflation inertia is the result of the behavior of and the existence of __.

Starting from long-run equilibrium,a large decrease in government purchases will result in a(n)__ gap in the short-run and inflation and output in the long-run