Question 1

The 2008-2009 recession began as oil prices increased,and then was followed by a negative demand shock..

Accepted Answer

A) True 
 B)False

Question 2

If output decreases,which of the following would occur?

Accepted Answer

A)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all increase and the economy would move upward along the aggregate supply curve. 
B)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all decrease and the economy would move upward along the aggregate supply curve. 
C)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all increase and the economy would move downward along the aggregate supply curve. 
D)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all decrease and the economy would move downward along the aggregate supply curve. 
E)  Prices of non-labor inputs would decrease,input requirements per unit of output would increase and the economy would move upward along the aggregate supply curve. 
A)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all increase and the economy would move upward along the aggregate supply curve. 
B)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all decrease and the economy would move upward along the aggregate supply curve. 
C)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all increase and the economy would move downward along the aggregate supply curve. 
D)  Prices of non-labor inputs,input requirements per unit of output and unit costs would all decrease and the economy would move downward along the aggregate supply curve. 
E)  Prices of non-labor inputs would decrease,input requirements per unit of output would increase and the economy would move upward along the aggregate supply curve.

Question 3

A movement along the AD curve down and to the right is caused by

Accepted Answer

A)  a rightward shift of the money demand curve 
B)  falling consumer confidence 
C)  a decreasing price level 
D)  expansionary open market transactions by the Fed 
E)  a stable price level and increases in consumption,investment,or government spending 
A)  a rightward shift of the money demand curve 
B)  falling consumer confidence 
C)  a decreasing price level 
D)  expansionary open market transactions by the Fed 
E)  a stable price level and increases in consumption,investment,or government spending

Question 4

The self-correcting mechanism is the reason that the economy will behave as the classical model predicts in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Equilibrium real GDP is

Accepted Answer

A)  independent of the price level 
B)  determined solely in the loanable funds market 
C)  controlled by the Fed 
D)  directly related to the interest rate 
E)  the level of output at which total spending equals total output for a given price level 
A)  independent of the price level 
B)  determined solely in the loanable funds market 
C)  controlled by the Fed 
D)  directly related to the interest rate 
E)  the level of output at which total spending equals total output for a given price level

Question 6

If a variable other than the price level changes,the AD curve shifts.

Accepted Answer

A) True 
 B)False

Question 7

If the government announces a new increase in spending with no change in taxes,which of the following would most likely occur?

Accepted Answer

A)  No change in the aggregate demand curve as well as no movement along it 
B)  A leftward shift of the aggregate demand curve 
C)  An upward movement along the aggregate demand curve 
D)  A rightward shift of the aggregate demand curve 
E)  A downward movement along the aggregate demand curve 
A)  No change in the aggregate demand curve as well as no movement along it 
B)  A leftward shift of the aggregate demand curve 
C)  An upward movement along the aggregate demand curve 
D)  A rightward shift of the aggregate demand curve 
E)  A downward movement along the aggregate demand curve

Question 8

By what mechanism does the economy always return to full employment after a demand shock in the short run?

Accepted Answer

A)  Wages automatically adjust themselves. 
B)  The interest rate automatically adjusts itself. 
C)  Prices automatically adjust themselves. 
D)  Taxes automatically adjust themselves. 
E)  Rents automatically adjust themselves. 
A)  Wages automatically adjust themselves. 
B)  The interest rate automatically adjusts itself. 
C)  Prices automatically adjust themselves. 
D)  Taxes automatically adjust themselves. 
E)  Rents automatically adjust themselves.

Question 9

An increase in oil prices is considered a supply shock because it would lead to a shift of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A)  increases in government purchases,investment spending,autonomous consumption,taxes or the money supply 
B)  decreases in government purchases,investment spending,autonomous consumption,or the money supply 
C)  increases in government purchases,investment spending,autonomous consumption or the money supply 
D)  decreases in government purchases,investment spending,autonomous consumption,taxes or an increase in the money supply 
E)  only increases in government purchases 
A)  increases in government purchases,investment spending,autonomous consumption,taxes or the money supply 
B)  decreases in government purchases,investment spending,autonomous consumption,or the money supply 
C)  increases in government purchases,investment spending,autonomous consumption or the money supply 
D)  decreases in government purchases,investment spending,autonomous consumption,taxes or an increase in the money supply 
E)  only increases in government purchases

Question 11

In the short run,the price level

Accepted Answer

A)  will decrease if unit costs and markups both increase throughout the economy 
B)  will remain stable if unit costs increase throughout the economy 
C)  is unimportant in macroeconomics 
D)  will increase if unit costs increase throughout the economy 
E)  is determined by the Fed 
A)  will decrease if unit costs and markups both increase throughout the economy 
B)  will remain stable if unit costs increase throughout the economy 
C)  is unimportant in macroeconomics 
D)  will increase if unit costs increase throughout the economy 
E)  is determined by the Fed

Question 12

The average percentage markup in the economy

Accepted Answer

A)  is greater,the more competitive are market conditions 
B)  is greater,the less competitive are market conditions 
C)  is unaffected by the competitive conditions of the economy 
D)  tends to be highly unstable from year to year 
E)  tends to be stable from year to year,ensuring that the price level is stable from year to year 
A)  is greater,the more competitive are market conditions 
B)  is greater,the less competitive are market conditions 
C)  is unaffected by the competitive conditions of the economy 
D)  tends to be highly unstable from year to year 
E)  tends to be stable from year to year,ensuring that the price level is stable from year to year

Question 13

The decline in output at the onset of the Great Depression was caused primarily by

Accepted Answer

A)  a positive demand shock 
B)  a negative demand shock 
C)  a positive supply shock 
D)  a negative supply shock 
E)  simultaneous shocks to supply and demand 
A)  a positive demand shock 
B)  a negative demand shock 
C)  a positive supply shock 
D)  a negative supply shock 
E)  simultaneous shocks to supply and demand

Question 14

If a demand shock causes the economy to move to a real GDP level that is below its full employment level,then

Accepted Answer

A)  we refer to this as a positive demand shock. 
B)  the economy will remain at this point in the long run. 
C)  the AS curve will adjust in the long run until the economy returns to full employment. 
D)  the AD curve will move back to its original position in the long run. 
E)  the unemployment rate will decline. 
A)  we refer to this as a positive demand shock. 
B)  the economy will remain at this point in the long run. 
C)  the AS curve will adjust in the long run until the economy returns to full employment. 
D)  the AD curve will move back to its original position in the long run. 
E)  the unemployment rate will decline.

Question 15

If equilibrium GDP is below potential,then

Accepted Answer

A)  unemployment is unusually low 
B)  the Fed will lower the money supply 
C)  the wage rate will fall as workers compete for scarce jobs 
D)  the aggregate supply curve will shift leftward 
E)  the wage rate will remain stable as labor productivity increases 
A)  unemployment is unusually low 
B)  the Fed will lower the money supply 
C)  the wage rate will fall as workers compete for scarce jobs 
D)  the aggregate supply curve will shift leftward 
E)  the wage rate will remain stable as labor productivity increases

Question 16

An increase in output will tend to

Accepted Answer

A)  increase productivity in the economy as a whole 
B)  reduce prices of non-labor inputs and other commodities in limited supply in the short run 
C)  increase real wage rates 
D)  increase nominal wage rates 
E)  decrease the price level 
A)  increase productivity in the economy as a whole 
B)  reduce prices of non-labor inputs and other commodities in limited supply in the short run 
C)  increase real wage rates 
D)  increase nominal wage rates 
E)  decrease the price level

Question 17

Which of the following mechanisms helps output to return to potential after a demand shock?

Accepted Answer

A)  Change in business mentality 
B)  Change in nominal wage rate 
C)  Large changes in the capital stock 
D)  Inability of the price level to change 
E)  Change in inventories 
A)  Change in business mentality 
B)  Change in nominal wage rate 
C)  Large changes in the capital stock 
D)  Inability of the price level to change 
E)  Change in inventories

Question 18

In the short run,a negative demand shock will

Accepted Answer

A)  decrease the price level but leave real GDP unchanged 
B)  increase the price level but leave real GDP unchanged 
C)  decrease both the price level and real GDP 
D)  increase the price level and decrease real GDP 
E)  decrease the wage rate 
A)  decrease the price level but leave real GDP unchanged 
B)  increase the price level but leave real GDP unchanged 
C)  decrease both the price level and real GDP 
D)  increase the price level and decrease real GDP 
E)  decrease the wage rate

Question 19

Since most firms use a stable markup,prices will remain stable over long periods of time.

Accepted Answer

A) True 
 B)False

Question 20

Nominal wages react slowly to changes in output for the following reasons,except one.Which is the exception?

Accepted Answer

A)  The nominal wage may be fixed and independent of output because of labor contracts that last up to three years. 
B)  The real wage remains constant despite changes in output. 
C)  Firms with a reputation for paying stable nominal wages will find it easier to attract new workers. 
D)  Changing the nominal wage can be costly to firms. 
E)  Nominal wages may be set by slow-moving corporate bureaucracies. 
A)  The nominal wage may be fixed and independent of output because of labor contracts that last up to three years. 
B)  The real wage remains constant despite changes in output. 
C)  Firms with a reputation for paying stable nominal wages will find it easier to attract new workers. 
D)  Changing the nominal wage can be costly to firms. 
E)  Nominal wages may be set by slow-moving corporate bureaucracies.

Exam 27: Aggregate Demand and Aggregate Supply

The 2008-2009 recession began as oil prices increased,and then was followed by a negative demand shock..

If output decreases,which of the following would occur?

A movement along the AD curve down and to the right is caused by

The self-correcting mechanism is the reason that the economy will behave as the classical model predicts in the long run.

Equilibrium real GDP is

If a variable other than the price level changes,the AD curve shifts.

If the government announces a new increase in spending with no change in taxes,which of the following would most likely occur?

By what mechanism does the economy always return to full employment after a demand shock in the short run?

An increase in oil prices is considered a supply shock because it would lead to a shift of the aggregate supply curve.

Which of the following would shift the aggregate demand curve to the left?

In the short run,the price level

The average percentage markup in the economy

The decline in output at the onset of the Great Depression was caused primarily by

If a demand shock causes the economy to move to a real GDP level that is below its full employment level,then

If equilibrium GDP is below potential,then

An increase in output will tend to

Which of the following mechanisms helps output to return to potential after a demand shock?

In the short run,a negative demand shock will

Since most firms use a stable markup,prices will remain stable over long periods of time.

Nominal wages react slowly to changes in output for the following reasons,except one.Which is the exception?

What Is Economics

Scarcity,choice,and Economic Systems

Scarcity, choice, and Economic Systems: Part A

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

Perfect Competition: Part A

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

labor Markets: Part A

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

What Macroeconomics Tries to Explain

Production, income, and Employment

The Price Level and Inflation

The Classical Long-Run Model

Part A: The Classical Model in an Open Economy

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-Run Macro Model

Fiscal Policy

Money,banks,and the Federal Reserve

The Money Market and Monetary Policy

Feedback Effects From GDP to the Money Market

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Appendix-finding Equilibrium GDP Algebraically

Appendix: Capital and Leverage

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