Question 1

A rise in future consumption spending, everything else remaining unchanged, will cause business investment spending to

Accepted Answer

A) decline. 
B) not change. 
C) rise. 
D) fall at first, then rise later. 
A) decline. 
B) not change. 
C) rise. 
D) fall at first, then rise later.

Question 2

Answer the questions below.
a.Suppose the economy is initially in long-run equilibrium in the AD-AS model.Draw a diagram showing long-run equilibrium, including the AD, LRAS, and SRAS curves.

b.Now suppose stock prices decline sharply.Draw a new diagram showing the AD, LRAS, and SRAS curves.How have the level of output and the price level changed? What happens to consumption spending and investment spending?

c.Redraw your diagram from part b, then draw new lines to show what would happen if the Fed changed monetary policy to return the economy to full-employment equilibrium.Does the money supply increase or decrease? Which curve (AD, LRAS, or SRAS) shifts as a result of the Fed's policy change? What happens to the price level and level of output compared with what they were in part b? What happens to consumption spending and investment spending compared with what they were in part b?

Accepted Answer

a.Standard diagram from the textbook.
b.

Question 3

In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in labor force shifts the____ to the_______ .

Accepted Answer

A) long-run aggregate supply; right 
B) aggregate demand; right 
C) short-run aggregate supply; left 
D) aggregate demand; left 
A) long-run aggregate supply; right 
B) aggregate demand; right 
C) short-run aggregate supply; left 
D) aggregate demand; left

Question 4

The aggregate-demand curve shows the combinations of_____and____that are consistent with equilibrium in the market for goods and services and the market for money.

Accepted Answer

A) the price level; output 
B) the price level; the real interest rate 
C) the real interest rate; the money supply 
D) the money supply; output and 
A) the price level; output 
B) the price level; the real interest rate 
C) the real interest rate; the money supply 
D) the money supply; output and

Question 5

A key failure of large structural macroeconomic models, according to the theory of rational expectations, is that the models assumed that expected inflation is independent of

Accepted Answer

A) monetary policy. 
B) past inflation. 
C) interest rates. 
D) aggregate demand. 
A) monetary policy. 
B) past inflation. 
C) interest rates. 
D) aggregate demand.

Question 6

A rise in the price level, everything else remaining unchanged, causes short-run aggregate supply to

Accepted Answer

A) decline. 
B) not change. 
C) increase. 
D) rise at first, then decline later. 
A) decline. 
B) not change. 
C) increase. 
D) rise at first, then decline later.

Question 7

Suppose business firms collectively become pessimistic about prospects for future profits because of continued worries about terrorism.Explain how this would affect investment, aggregate demand, output, and the price level in the short run and the long run.

Accepted Answer

The reduction in business optimism reduc

Question 8

According to_____ , people use all available information in making their economic decisions.

Accepted Answer

A) Keynesian theory 
B) monetarist theory 
C) the Lucas critique 
D) the theory of rational expectations 
A) Keynesian theory 
B) monetarist theory 
C) the Lucas critique 
D) the theory of rational expectations

Question 9

Which of the following equations is true of aggregate demand?

Accepted Answer

A) Aggregate demand = consumption + investment - government spending - net exports 
B) Aggregate demand = consumption - investment - government spending - net exports 
C) Aggregate demand = consumption + investment + government spending + net exports 
D) Aggregate demand = consumption - investment + government spending + net exports 
A) Aggregate demand = consumption + investment - government spending - net exports 
B) Aggregate demand = consumption - investment - government spending - net exports 
C) Aggregate demand = consumption + investment + government spending + net exports 
D) Aggregate demand = consumption - investment + government spending + net exports

Question 10

The total amount of physical capital in all firms and households is called the

Accepted Answer

A) human capital. 
B) capital stock. 
C) household income. 
D) physical product. 
A) human capital. 
B) capital stock. 
C) household income. 
D) physical product.

Question 11

A rise in the real interest rate, everything else remaining unchanged, will cause household investment in housing to

Accepted Answer

A) decline. 
B) not change. 
C) rise. 
D) rise at first, then decline later. 
A) decline. 
B) not change. 
C) rise. 
D) rise at first, then decline later.

Question 12

If there is a significant drop in business optimism in an economy

Accepted Answer

A) the economy's long-run aggregate supply curve shifts to the right. 
B) the economy's aggregate demand curve shifts to the left. 
C) the labor supply in the economy increases in the long run. 
D) the capital stock in the economy increases in the long run. 
A) the economy's long-run aggregate supply curve shifts to the right. 
B) the economy's aggregate demand curve shifts to the left. 
C) the labor supply in the economy increases in the long run. 
D) the capital stock in the economy increases in the long run.

Question 13

The_____ believe that it takes a long time for prices and wages to change to restore equilibrium in an economy.

Accepted Answer

A) Keynesians 
B) classical economists 
C) monetarists 
D) institutional economists 
A) Keynesians 
B) classical economists 
C) monetarists 
D) institutional economists

Question 14

Describe what monetary policymakers should do if they want to keep the price level in an economy permanently low.?

Accepted Answer

The policymakers should use a contractio

Question 15

A rise in the incomes of foreign consumers, everything else remaining unchanged, causes net exports to

Accepted Answer

A) decline. 
B) not change. 
C) rise. 
D) rise at first, then decline later. 
A) decline. 
B) not change. 
C) rise. 
D) rise at first, then decline later.

Question 16

If there is no policy action in an economy that is producing an output below its full-employment level, then

Accepted Answer

A) the output returns to full-employment level quickly. 
B) the price level declines slowly. 
C) the price level rises quickly. 
D) the output stays below full-employment for a short period, then rises quickly. 
A) the output returns to full-employment level quickly. 
B) the price level declines slowly. 
C) the price level rises quickly. 
D) the output stays below full-employment for a short period, then rises quickly.

Question 17

Macroeconomic models from the 1950s and 1960s that consist of hundreds of equations that describe the economy in great detail are called

Accepted Answer

A) real business-cycle models. 
B) large, structural macroeconomic models. 
C) VARs. 
D) structural VARs. 
A) real business-cycle models. 
B) large, structural macroeconomic models. 
C) VARs. 
D) structural VARs.

Question 18

Suppose another breakthrough in computer technology greatly increases total factor productivity.Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Accepted Answer

The increase in total factor productivit

Question 19

Consumption spending is about_____ of aggregate demand.

Accepted Answer

A) 2/3 
B) 1/2 
C) 3/4 
D) 5/6 
A) 2/3 
B) 1/2 
C) 3/4 
D) 5/6

Question 20

The unemployment rate reflecting normal job turnover is called

Accepted Answer

A) the natural rate of unemployment. 
B) the non-accelerating investment rate of unemployment (NAIRU). 
C) frictional unemployment. 
D) structural unemployment. 
A) the natural rate of unemployment. 
B) the non-accelerating investment rate of unemployment (NAIRU). 
C) frictional unemployment. 
D) structural unemployment.

A rise in future consumption spending, everything else remaining unchanged, will cause business investment spending to

In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in labor force shifts the to the___ .

The aggregate-demand curve shows the combinations of_andthat are consistent with equilibrium in the market for goods and services and the market for money.

A key failure of large structural macroeconomic models, according to the theory of rational expectations, is that the models assumed that expected inflation is independent of

A rise in the price level, everything else remaining unchanged, causes short-run aggregate supply to

Suppose business firms collectively become pessimistic about prospects for future profits because of continued worries about terrorism.Explain how this would affect investment, aggregate demand, output, and the price level in the short run and the long run.

According to_____ , people use all available information in making their economic decisions.

Which of the following equations is true of aggregate demand?

The total amount of physical capital in all firms and households is called the

A rise in the real interest rate, everything else remaining unchanged, will cause household investment in housing to

If there is a significant drop in business optimism in an economy

The_____ believe that it takes a long time for prices and wages to change to restore equilibrium in an economy.

Describe what monetary policymakers should do if they want to keep the price level in an economy permanently low.?

A rise in the incomes of foreign consumers, everything else remaining unchanged, causes net exports to

If there is no policy action in an economy that is producing an output below its full-employment level, then

Macroeconomic models from the 1950s and 1960s that consist of hundreds of equations that describe the economy in great detail are called

Suppose another breakthrough in computer technology greatly increases total factor productivity.Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Consumption spending is about_____ of aggregate demand.

The unemployment rate reflecting normal job turnover is called

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

Exam 12: The Aggregate-Demandaggregate-Supply Model

A rise in future consumption spending, everything else remaining unchanged, will cause business investment spending to

In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in labor force shifts the____ to the_______ .

The aggregate-demand curve shows the combinations of_____and____that are consistent with equilibrium in the market for goods and services and the market for money.

A key failure of large structural macroeconomic models, according to the theory of rational expectations, is that the models assumed that expected inflation is independent of

A rise in the price level, everything else remaining unchanged, causes short-run aggregate supply to

Suppose business firms collectively become pessimistic about prospects for future profits because of continued worries about terrorism.Explain how this would affect investment, aggregate demand, output, and the price level in the short run and the long run.

According to_____ , people use all available information in making their economic decisions.

Which of the following equations is true of aggregate demand?

The total amount of physical capital in all firms and households is called the

A rise in the real interest rate, everything else remaining unchanged, will cause household investment in housing to

If there is a significant drop in business optimism in an economy

The_____ believe that it takes a long time for prices and wages to change to restore equilibrium in an economy.

Describe what monetary policymakers should do if they want to keep the price level in an economy permanently low.?

A rise in the incomes of foreign consumers, everything else remaining unchanged, causes net exports to

If there is no policy action in an economy that is producing an output below its full-employment level, then

Macroeconomic models from the 1950s and 1960s that consist of hundreds of equations that describe the economy in great detail are called

Suppose another breakthrough in computer technology greatly increases total factor productivity.Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Consumption spending is about_____ of aggregate demand.

The unemployment rate reflecting normal job turnover is called

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in labor force shifts the to the___ .

The aggregate-demand curve shows the combinations of_andthat are consistent with equilibrium in the market for goods and services and the market for money.