Question 1

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Accepted Answer

A)  Investment is a small part of real GDP,and it accounts for a small share of the fluctuation in real GDP. 
B)  Investment is a small part of real GDP,yet it accounts for a large share of the fluctuation in real GDP. 
C)  Investment is a large part of real GDP,and it accounts for a large share of the fluctuation in real GDP. 
D)  Investment is a large part of real GDP,yet it accounts for a small share of the fluctuation in real GDP. 
A)  Investment is a small part of real GDP,and it accounts for a small share of the fluctuation in real GDP. 
B)  Investment is a small part of real GDP,yet it accounts for a large share of the fluctuation in real GDP. 
C)  Investment is a large part of real GDP,and it accounts for a large share of the fluctuation in real GDP. 
D)  Investment is a large part of real GDP,yet it accounts for a small share of the fluctuation in real GDP.

Question 2

Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?

Accepted Answer

A)  Real GDP will rise,and the price level might rise,fall,or stay the same. 
B)  Real GDP will fall,and the price level might rise,fall,or stay the same. 
C)  The price level will rise,and real GDP might rise,fall,or stay the same. 
D)  The price level will fall,and real GDP might rise,fall,or stay the same. 
A)  Real GDP will rise,and the price level might rise,fall,or stay the same. 
B)  Real GDP will fall,and the price level might rise,fall,or stay the same. 
C)  The price level will rise,and real GDP might rise,fall,or stay the same. 
D)  The price level will fall,and real GDP might rise,fall,or stay the same.

Question 3

An aggregate-supply (AS)curve is described by the equation Y = YS1U1B1LRS1U1B0 + a × (P - PS1U1B1EXPS1U1B0),where Y is current output,YS1U1B1LRS1U1B0 is the long run level of output,a is a positive constant,P is the current price level,and PS1U1B1EXPS1U1B0 is the expected price level.Suppose YS1U1B1LRS1U1B0 = 50,a = 1,and S1U1B1PEXPS1U1B0 = 40.
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a.Draw the long-run aggregate-supply curve in an AD - AS (aggregate demand - aggregate supply)diagram.
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b.Using the AS equation,find the output corresponding to price levels P = 40 and P = 80 and place the 2 points on your diagram.Draw the short-run AS curve that passes through the two points.
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c.Identify the expected price level on your graph.
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d.Suppose the expected price level decreases to PS1U1B1EXPS1U1B0 = 30.For current price levels P = 40 and P = 60,recalculate the output levels using the AS formula.Draw the new AS curve and identify the new expected price level.

Accepted Answer

a.The long-run aggregate-supply curve is

Question 4

What has been suggested as a cause of the Great Depression?

Accepted Answer

A)  a decline in output 
B)  a decrease in prices 
C)  strong bank regulations 
D)  a fall in net exports 
A)  a decline in output 
B)  a decrease in prices 
C)  strong bank regulations 
D)  a fall in net exports

Question 5

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  a decrease in the money supply 
B)  a decrease in net exports at every exchange rate 
C)  a decrease in prices 
D)  a decrease in imports 
A)  a decrease in the money supply 
B)  a decrease in net exports at every exchange rate 
C)  a decrease in prices 
D)  a decrease in imports

Question 6

Which government action will shift the aggregate demand right?

Accepted Answer

A)  a rise in personal income taxes 
B)  increases in military expenditures 
C)  a repeal of an investment tax credit 
D)  closing up a military facility to reduce costs 
A)  a rise in personal income taxes 
B)  increases in military expenditures 
C)  a repeal of an investment tax credit 
D)  closing up a military facility to reduce costs

Question 7

Figure 14-1    
-Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run?

Accepted Answer

A)  It stays at A. 
B)  It moves to B. 
C)  It moves to C. 
D)  It moves to D. 
A)  It stays at A. 
B)  It moves to B. 
C)  It moves to C. 
D)  It moves to D.

Question 8

What happens when the price level rises?

Accepted Answer

A)  Interest rates rise,so firms increase investment. 
B)  Interest rates rise,so firms decrease investment. 
C)  Interest rates fall,so firms increase investment. 
D)  Interest rates fall,so firms decrease investment. 
A)  Interest rates rise,so firms increase investment. 
B)  Interest rates rise,so firms decrease investment. 
C)  Interest rates fall,so firms increase investment. 
D)  Interest rates fall,so firms decrease investment.

Question 9

Figure 14-1    
-Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run?

Accepted Answer

A)  It moves to C and then to A. 
B)  It moves to B and then to A. 
C)  It moves to C. 
D)  It moves to A. 
A)  It moves to C and then to A. 
B)  It moves to B and then to A. 
C)  It moves to C. 
D)  It moves to A.

Question 10

Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.

Accepted Answer

See graph. @#IMG-DLM& @#IMG-DLM& Over time,technological adv

Question 11

What does an increase in the interest rate cause?

Accepted Answer

A)  It causes investment to rise and the exchange rate to appreciate. 
B)  It causes investment to fall and the exchange rate to depreciate. 
C)  It causes investment to rise and the exchange rate to depreciate. 
D)  It causes investment to fall and the exchange rate to appreciate. 
A)  It causes investment to rise and the exchange rate to appreciate. 
B)  It causes investment to fall and the exchange rate to depreciate. 
C)  It causes investment to rise and the exchange rate to depreciate. 
D)  It causes investment to fall and the exchange rate to appreciate.

Question 12

What happens to sales and profit during recessions?

Accepted Answer

A)  sales and profits fall 
B)  sales and profits rise 
C)  sales rise and profits fall 
D)  profits fall and sales rise 
A)  sales and profits fall 
B)  sales and profits rise 
C)  sales rise and profits fall 
D)  profits fall and sales rise

Question 13

When output rises,unemployment falls.

Accepted Answer

A) True 
 B)False

Question 14

Which statement best characterizes the long-run aggregate-supply curve?

Accepted Answer

A)  It is determined by the things that determine output in the classical model. 
B)  It is located at the point where unemployment is zero. 
C)  It shifts to the right when the price level increases. 
D)  It is positioned at the point where the economy would cease to grow. 
A)  It is determined by the things that determine output in the classical model. 
B)  It is located at the point where unemployment is zero. 
C)  It shifts to the right when the price level increases. 
D)  It is positioned at the point where the economy would cease to grow.

Question 15

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Accepted Answer

Variables that fall along with real GDP

Question 16

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Accepted Answer

A) True 
 B)False

Question 17

Scenario 14-2
The economy is in long-run equilibrium.Suddenly,due to corporate scandals,a recession experienced by a major trading partner,and the loss of confidence among policymakers,citizens become pessimistic concerning the future.They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2.In the short-run,which statement is consistent with the aggregate demand and aggregate supply theory?

Accepted Answer

A)  The price level and real GDP both increase. 
B)  The price level and real GDP both decrease. 
C)  The price level rises,and real GDP falls 
D)  The price level falls,and real GDP rises. 
A)  The price level and real GDP both increase. 
B)  The price level and real GDP both decrease. 
C)  The price level rises,and real GDP falls 
D)  The price level falls,and real GDP rises.

Question 18

In which situation would stagflation exist?

Accepted Answer

A)  when prices and output rise 
B)  when prices rise and output falls 
C)  when prices fall and output rises 
D)  when prices and output fall 
A)  when prices and output rise 
B)  when prices rise and output falls 
C)  when prices fall and output rises 
D)  when prices and output fall

Question 19

In which situation would the long-run aggregate-supply curve shift right?

Accepted Answer

A)  if the government were to increase the minimum-wage 
B)  if the government were to make unemployment benefits more generous 
C)  if the government were to raise taxes on investment spending 
D)  if the government were to increase immigration 
A)  if the government were to increase the minimum-wage 
B)  if the government were to make unemployment benefits more generous 
C)  if the government were to raise taxes on investment spending 
D)  if the government were to increase immigration

Question 20

Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.

Accepted Answer

A) True 
 B)False

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?

What has been suggested as a cause of the Great Depression?

Which of the following shifts aggregate demand to the right?

Which government action will shift the aggregate demand right?

Figure 14-1 -Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run?

What happens when the price level rises?

Figure 14-1 -Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run?

Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.

What does an increase in the interest rate cause?

What happens to sales and profit during recessions?

When output rises,unemployment falls.

Which statement best characterizes the long-run aggregate-supply curve?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

In which situation would stagflation exist?

In which situation would the long-run aggregate-supply curve shift right?

Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 14: Aggregate Demand and Aggregate Supply

How does the size of investment as a fraction of GDP compare to its importance in creating economic fluctuations?

Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?

What has been suggested as a cause of the Great Depression?

Which of the following shifts aggregate demand to the right?

Which government action will shift the aggregate demand right?

Figure 14-1 -Refer to the Figure 14-1.If the economy is at A and there is a fall in aggregate demand,what happens to the economy in the short run?

What happens when the price level rises?

Figure 14-1 -Refer to the Figure 14-1.If the economy starts at A and moves to D,what happens to the economy in the long run?

Illustrate the classical analysis of growth and inflation with aggregate-demand and long-run aggregate-supply curves.

What does an increase in the interest rate cause?

What happens to sales and profit during recessions?

When output rises,unemployment falls.

Which statement best characterizes the long-run aggregate-supply curve?

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

In which situation would stagflation exist?

In which situation would the long-run aggregate-supply curve shift right?

Increased output and prices in Canada in the early 1940s was mostly the result of increased government expenditures.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters