Question 1

If the economy is close to full employment,what will be the result of an increase in aggregate demand?

Accepted Answer

A) The price level will increase only a little,and Real GDP will increase a lot. 
B) The price level will increase a lot,and Real GDP will increase only a little. 
C) Both the price level and Real GDP will increase only a little. 
D) Both the price level and Real GDP will increase a lot. 
A) The price level will increase only a little,and Real GDP will increase a lot. 
B) The price level will increase a lot,and Real GDP will increase only a little. 
C) Both the price level and Real GDP will increase only a little. 
D) Both the price level and Real GDP will increase a lot.

Question 2

What effect will an increase in the Canadian price level have on trade?

Accepted Answer

A) It will increase the volume of both Canadian exports and imports. 
B) It will decrease the volume of both Canadian exports and imports. 
C) It will increase the volume of Canadian exports but decrease the volume of imports. 
D) It will decrease the volume of Canadian exports but increase the volume of imports. 
A) It will increase the volume of both Canadian exports and imports. 
B) It will decrease the volume of both Canadian exports and imports. 
C) It will increase the volume of Canadian exports but decrease the volume of imports. 
D) It will decrease the volume of Canadian exports but increase the volume of imports.

Question 3

An increase in aggregate demand will cause an increase in both Real GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 4

All of the following,except one,will contribute to economic growth.Which is the exception?

Accepted Answer

A) Increased levels of human capital. 
B) Higher prices. 
C) Increases in the capital stock. 
D) Technological change. 
E) Increased quantities of natural resources. 
A) Increased levels of human capital. 
B) Higher prices. 
C) Increases in the capital stock. 
D) Technological change. 
E) Increased quantities of natural resources.

Question 5

What is the slope of the AS curve?

Accepted Answer

A) Horizontal. 
B) Upward-sloping. 
C) Vertical. 
D) Downward-sloping. 
E) The same slope as the LAS curve. 
A) Horizontal. 
B) Upward-sloping. 
C) Vertical. 
D) Downward-sloping. 
E) The same slope as the LAS curve.

Question 6

Explain how the substitution effect will affect aggregate demand when the price level decreases.

Accepted Answer

A) The substitution effect will cause aggregate demand to increase. 
B) The substitution effect will cause aggregate demand to decrease. 
C) There is no substitution effect as there's no substitute for all goods. 
D) There's no substitution effect if incomes are also rising. 
E) There is a substitution effect that is smaller than the income effect,so it's uncertain what will happen to aggregate demand. 
A) The substitution effect will cause aggregate demand to increase. 
B) The substitution effect will cause aggregate demand to decrease. 
C) There is no substitution effect as there's no substitute for all goods. 
D) There's no substitution effect if incomes are also rising. 
E) There is a substitution effect that is smaller than the income effect,so it's uncertain what will happen to aggregate demand.

Question 7

If the economy is at full employment and both the AS curve and the LAS curve shift right,why might the economy experience a recessionary gap?

Accepted Answer

A) Because prices are inflexible downwards. 
B) Because the LAS curve will always shift more than the AS curve. 
C) Because a new equilibrium price level may be established that is above the price level needed to maintain full employment 
D) Because a new equilibrium price level may be established that is below the price level needed to maintain full employment 
E) Because there is no reason to assume that the aggregate demand curve will shift. 
A) Because prices are inflexible downwards. 
B) Because the LAS curve will always shift more than the AS curve. 
C) Because a new equilibrium price level may be established that is above the price level needed to maintain full employment 
D) Because a new equilibrium price level may be established that is below the price level needed to maintain full employment 
E) Because there is no reason to assume that the aggregate demand curve will shift.

Question 8

-Refer to the figure above to answer this question.What could cause the change from point a to point b?

Accepted Answer

A) An increase in government spending. 
B) A decrease in labour productivity. 
C) The discovery of new oil fields. 
D) A decrease in taxes. 
E) A decrease in the prevailing nominal wage. 
A) An increase in government spending. 
B) A decrease in labour productivity. 
C) The discovery of new oil fields. 
D) A decrease in taxes. 
E) A decrease in the prevailing nominal wage.

Question 9

The following are aggregate demand and supply schedules for a hypothetical economy.All figures are in $ billions.
   Note: Potential GDP is 3,000.
-Refer to the information above to answer this question.Assume that reduced investment spending lowers aggregate demand by 600.What would the new equilibrium price level and Real GDP be?

Accepted Answer

A) 170 and 2,400. 
B) 130 and 2,400. 
C) 130 and 3,000. 
D) 150 and 2,600. 
A) 170 and 2,400. 
B) 130 and 2,400. 
C) 130 and 3,000. 
D) 150 and 2,600.

Question 10

-What does macroeconomic equilibrium imply?

Accepted Answer

A) AS = LAS 
B) AD = AS 
C) AD = LAS 
D) AD = AS = LAS 
A) AS = LAS 
B) AD = AS 
C) AD = LAS 
D) AD = AS = LAS

Question 11

What is the slope of the aggregate supply curve,according to neoclassical economists?

Accepted Answer

A) Vertical,because prices tend to be inflexible. 
B) Vertical at the capacity level of output in the economy. 
C) Horizontal,because wages are flexible. 
D) Horizontal,because prices are flexible. 
A) Vertical,because prices tend to be inflexible. 
B) Vertical at the capacity level of output in the economy. 
C) Horizontal,because wages are flexible. 
D) Horizontal,because prices are flexible.

Question 12

Which of the following is true of the concept of economic capacity?

Accepted Answer

A) It is equal to actual GDP. 
B) It is very expensive for an economy to produce at a higher level of output. 
C) It is impossible for an economy to produce at a higher level of output. 
D) It is the amount firms prefer to produce at any price level. 
E) It will always increase over time. 
A) It is equal to actual GDP. 
B) It is very expensive for an economy to produce at a higher level of output. 
C) It is impossible for an economy to produce at a higher level of output. 
D) It is the amount firms prefer to produce at any price level. 
E) It will always increase over time.

Question 13

-Refer to the graph above to answer this question.Which of the following statements is not true if the economy is at point A?

Accepted Answer

A) Money wages will eventually be forced down. 
B) Firms will find it difficult to hire labour and people will find it easy to find jobs. 
C) A recessionary gap exists. 
D) Unemployment is above its natural rate. 
E) An increase in aggregate supply will move the economy towards full employment. 
A) Money wages will eventually be forced down. 
B) Firms will find it difficult to hire labour and people will find it easy to find jobs. 
C) A recessionary gap exists. 
D) Unemployment is above its natural rate. 
E) An increase in aggregate supply will move the economy towards full employment.

Question 14

What does the real-balances effect mean?

Accepted Answer

A) A higher price level will lead to an increase in the rate of interest,thereby causing a decrease in consumption. 
B) A lower price level will lead to an increase in the rate of interest,thereby causing a decrease in consumption. 
C) A higher price will increase the real value of financial assets,thereby causing an increase in consumption. 
D) A higher price will decrease the real value of financial assets,thereby causing an increase in consumption. 
E) A higher price will decrease the real value of financial assets,thereby causing a decrease in consumption. 
A) A higher price level will lead to an increase in the rate of interest,thereby causing a decrease in consumption. 
B) A lower price level will lead to an increase in the rate of interest,thereby causing a decrease in consumption. 
C) A higher price will increase the real value of financial assets,thereby causing an increase in consumption. 
D) A higher price will decrease the real value of financial assets,thereby causing an increase in consumption. 
E) A higher price will decrease the real value of financial assets,thereby causing a decrease in consumption.

Question 15

Assume that an economy is at full employment.
a)Using an AD/AS diagram,graphically illustrate the economy at full employment.
b)Now suppose there is an increase in imports.Illustrate in the same diagram (as part a),the effect of an increase in imports.

Accepted Answer

a)
b)Increases in imports will

Question 16

-Refer to the figure above to answer this question.Which of the following would cause a movement from point a to point c?

Accepted Answer

A) A decrease in the price level. 
B) An increase in wealth holdings. 
C) An increase in government spending. 
D) An increase in the interest rate. 
E) An increase in foreign incomes. 
A) A decrease in the price level. 
B) An increase in wealth holdings. 
C) An increase in government spending. 
D) An increase in the interest rate. 
E) An increase in foreign incomes.

Question 17

All of the following,except one,is another way of thinking of full-employment GDP.Which is the exception?

Accepted Answer

A) It is the level of GDP at the natural rate of unemployment. 
B) It is often referred to as long-run aggregate supply. 
C) It is the level of GDP when cyclical unemployment is zero. 
D) It is the same as Potential GDP. 
E) It is the level of GDP when frictional and structural unemployment is zero. 
A) It is the level of GDP at the natural rate of unemployment. 
B) It is often referred to as long-run aggregate supply. 
C) It is the level of GDP when cyclical unemployment is zero. 
D) It is the same as Potential GDP. 
E) It is the level of GDP when frictional and structural unemployment is zero.

Question 18

Assume that the economy is at full employment.Now suppose there is an increase in consumption.At the new equilibrium,
a)will there be an output gap? What type?
b)what is the effect on the price level?
c)what is the effect on the level of Real GDP

Accepted Answer

An increase in consumption exp

Question 19

Answer the question(s)on the basis of the following table:
  
-Refer to the above information to answer this question.What will happen if the labour participation rate increases?

Accepted Answer

A) 1 and A 
B) 2 and B 
C) 2 and C 
D) 3 and A 
A) 1 and A 
B) 2 and B 
C) 2 and C 
D) 3 and A

Question 20

The following figure depicts the economy of Atlas,which is presently in equilibrium.
a)What is the size of its recessionary gap?
b)What is the size of its gap as a percentage of its actual GDP?
c)If the natural rate of unemployment is 5 percent,using Okun's Law,calculate the amount of unemployment in Atlas.

Accepted Answer

a)$100
b)25%
c)15% (

If the economy is close to full employment,what will be the result of an increase in aggregate demand?

What effect will an increase in the Canadian price level have on trade?

An increase in aggregate demand will cause an increase in both Real GDP and the price level.

All of the following,except one,will contribute to economic growth.Which is the exception?

What is the slope of the AS curve?

Explain how the substitution effect will affect aggregate demand when the price level decreases.

If the economy is at full employment and both the AS curve and the LAS curve shift right,why might the economy experience a recessionary gap?

-Refer to the figure above to answer this question.What could cause the change from point a to point b?

-What does macroeconomic equilibrium imply?

What is the slope of the aggregate supply curve,according to neoclassical economists?

Which of the following is true of the concept of economic capacity?

-Refer to the graph above to answer this question.Which of the following statements is not true if the economy is at point A?

What does the real-balances effect mean?

Assume that an economy is at full employment. a)Using an AD/AS diagram,graphically illustrate the economy at full employment. b)Now suppose there is an increase in imports.Illustrate in the same diagram (as part a),the effect of an increase in imports.

-Refer to the figure above to answer this question.Which of the following would cause a movement from point a to point c?

All of the following,except one,is another way of thinking of full-employment GDP.Which is the exception?

Assume that the economy is at full employment.Now suppose there is an increase in consumption.At the new equilibrium, a)will there be an output gap? What type? b)what is the effect on the price level? c)what is the effect on the level of Real GDP

Answer the question(s)on the basis of the following table: -Refer to the above information to answer this question.What will happen if the labour participation rate increases?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Exchange Rates and the Balance of Payments

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Exam 5: Aggregate Demand and Supply

If the economy is close to full employment,what will be the result of an increase in aggregate demand?

What effect will an increase in the Canadian price level have on trade?

An increase in aggregate demand will cause an increase in both Real GDP and the price level.

All of the following,except one,will contribute to economic growth.Which is the exception?

What is the slope of the AS curve?

Explain how the substitution effect will affect aggregate demand when the price level decreases.

If the economy is at full employment and both the AS curve and the LAS curve shift right,why might the economy experience a recessionary gap?

-Refer to the figure above to answer this question.What could cause the change from point a to point b?

-What does macroeconomic equilibrium imply?

What is the slope of the aggregate supply curve,according to neoclassical economists?

Which of the following is true of the concept of economic capacity?

-Refer to the graph above to answer this question.Which of the following statements is not true if the economy is at point A?

What does the real-balances effect mean?

Assume that an economy is at full employment. a)Using an AD/AS diagram,graphically illustrate the economy at full employment. b)Now suppose there is an increase in imports.Illustrate in the same diagram (as part a),the effect of an increase in imports.

-Refer to the figure above to answer this question.Which of the following would cause a movement from point a to point c?

All of the following,except one,is another way of thinking of full-employment GDP.Which is the exception?

Assume that the economy is at full employment.Now suppose there is an increase in consumption.At the new equilibrium, a)will there be an output gap? What type? b)what is the effect on the price level? c)what is the effect on the level of Real GDP

Answer the question(s)on the basis of the following table: -Refer to the above information to answer this question.What will happen if the labour participation rate increases?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Exchange Rates and the Balance of Payments

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters