Question 1

If autonomous consumption decreases,which of the following combinations of events would be most likely to occur?

Accepted Answer

A)  An upward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
B)  A downward shift of the aggregate expenditure line,a leftward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
C)  A downward shift of the aggregate expenditure line,a leftward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
D)  A downward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
E)  An upward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve. 
A)  An upward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
B)  A downward shift of the aggregate expenditure line,a leftward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
C)  A downward shift of the aggregate expenditure line,a leftward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
D)  A downward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
E)  An upward shift of the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve.

Question 2

Supply and demand shocks are two different categories of

Accepted Answer

A)  fiscal shocks. 
B)  monetary shocks. 
C)  tax shocks. 
D)  spending shocks. 
E)  commodity shocks. 
A)  fiscal shocks. 
B)  monetary shocks. 
C)  tax shocks. 
D)  spending shocks. 
E)  commodity shocks.

Question 3

If government spending increases,which of the following would be most likely in the short and in the long run? (Both comparisons are with regard to the original price level/output combination. )

Accepted Answer

A)  Short-run increases in the price level,no change in output;long-run increases in output and in the price level 
B)  Short-run increases in output and in the price level;long-run increase in output,decrease in the price level 
C)  Short-run decreases in output and in the price level;long-run increase in the price level,no change in output 
D)  Short-run increases in output and in the price level;long-run increase in the price level,no change in output 
E)  Short-run decreases in output and in the price level;long-run decreases in output and in the price level 
A)  Short-run increases in the price level,no change in output;long-run increases in output and in the price level 
B)  Short-run increases in output and in the price level;long-run increase in output,decrease in the price level 
C)  Short-run decreases in output and in the price level;long-run increase in the price level,no change in output 
D)  Short-run increases in output and in the price level;long-run increase in the price level,no change in output 
E)  Short-run decreases in output and in the price level;long-run decreases in output and in the price level

Question 4

The aggregate demand curve tells us equilibrium real GDP at any level of income.

Accepted Answer

A) True 
 B)False

Question 5

A negative demand shock would lead to a decline in both the price level and output in the short run.

Accepted Answer

A) True 
 B)False

Question 6

The average percentage markup in the economy

Accepted Answer

A)  is of special interest in microeconomics 
B)  fluctuates greatly from year to year 
C)  depends on competitive conditions in the economy 
D)  depends on the level of GDP 
E)  increases as the interest rate increases 
A)  is of special interest in microeconomics 
B)  fluctuates greatly from year to year 
C)  depends on competitive conditions in the economy 
D)  depends on the level of GDP 
E)  increases as the interest rate increases

Question 7

If the government increases taxes,which of the following will occur in the short run?

Accepted Answer

A)  An increase in GDP,an increase in the price level,an increase in money demand and an increase in the interest rate. 
B)  An increase in GDP,an increase in the price level,a decrease in money demand and an increase in the interest rate. 
C)  An increase in GDP,a decrease in the price level,an increase in money demand and an increase in the interest rate. 
D)  A decrease in GDP,a decrease in the price level,a decrease in money demand and a decrease in the interest rate. 
E)  A decrease in GDP,an increase in the price level,an increase in money demand and a decrease in the interest rate. 
A)  An increase in GDP,an increase in the price level,an increase in money demand and an increase in the interest rate. 
B)  An increase in GDP,an increase in the price level,a decrease in money demand and an increase in the interest rate. 
C)  An increase in GDP,a decrease in the price level,an increase in money demand and an increase in the interest rate. 
D)  A decrease in GDP,a decrease in the price level,a decrease in money demand and a decrease in the interest rate. 
E)  A decrease in GDP,an increase in the price level,an increase in money demand and a decrease in the interest rate.

Question 8

The aggregate supply curve is

Accepted Answer

A)  the sum of all individual firms' supply curves. 
B)  vertical in the short run. 
C)  downward sloping in the short run. 
D)  upward sloping in the short run. 
E)  upward sloping both in the short run and the long run. 
A)  the sum of all individual firms' supply curves. 
B)  vertical in the short run. 
C)  downward sloping in the short run. 
D)  upward sloping in the short run. 
E)  upward sloping both in the short run and the long run.

Question 9

-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE1 to AE2,and from AD1 to AD2?

Accepted Answer

A)  A decrease in the money supply 
B)  An increase in government purchases 
C)  An increase in investment spending 
D)  A decrease in autonomous consumption 
E)  A decrease in taxes 
A)  A decrease in the money supply 
B)  An increase in government purchases 
C)  An increase in investment spending 
D)  A decrease in autonomous consumption 
E)  A decrease in taxes

Question 10

A positive demand shock may

Accepted Answer

A)  cause an economy to operate at a point above potential GDP in the short run 
B)  increase potential output 
C)  be caused by relatively low employment levels 
D)  cause the price level to fall 
E)  be offset by falling wage rates 
A)  cause an economy to operate at a point above potential GDP in the short run 
B)  increase potential output 
C)  be caused by relatively low employment levels 
D)  cause the price level to fall 
E)  be offset by falling wage rates

Question 11

If a change in investment spending is due to a change in the price level,then the aggregate demand curve will shift.

Accepted Answer

A) True 
 B)False

Question 12

If the government announces a cut in the capital gains tax and it is expected that investment spending will increase as a result,which of the following are also likely?

Accepted Answer

A)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
B)  A downward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
C)  An upward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
D)  A downward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
E)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve. 
A)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
B)  A downward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
C)  An upward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
D)  A downward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
E)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve.

Question 13

The aggregate demand curve tells us equilibrium real GDP at any price level.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a reason why wages respond slowly to changes in output?

Accepted Answer

A)  Many labor contracts specify wages for up to three years. 
B)  The process of wage setting in large corporations is slow moving. 
C)  Frequent wage changes can reduce worker morale and reduce productivity. 
D)  Firms benefit from having a reputation of paying stable wages. 
E)  The labor supply and demand curves move rapidly to clear labor markets. 
A)  Many labor contracts specify wages for up to three years. 
B)  The process of wage setting in large corporations is slow moving. 
C)  Frequent wage changes can reduce worker morale and reduce productivity. 
D)  Firms benefit from having a reputation of paying stable wages. 
E)  The labor supply and demand curves move rapidly to clear labor markets.

Question 15

-Refer to Figure 15-6.If the price level is currently at 140,what would we expect to occur in the short run?

Accepted Answer

A)  The price level will remain at 140 and businesses will cut production to $5.5 trillion. 
B)  The price level will remain at 140 and the extra $2 trillion in real GDP will be saved for future use. 
C)  The aggregate supply curve will shift upward until it intersects the aggregate demand curve at a price level of 140 and real GDP of $5.5 trillion. 
D)  The aggregate demand curve will shift right until it intersects the aggregate supply curve at a price level of 140 and real GDP of $7.5 trillion. 
E)  Inventories will accumulate and businesses will cut production until equilibrium is reached at a price level of 120 and real GDP of $6.5 trillion. 
A)  The price level will remain at 140 and businesses will cut production to $5.5 trillion. 
B)  The price level will remain at 140 and the extra $2 trillion in real GDP will be saved for future use. 
C)  The aggregate supply curve will shift upward until it intersects the aggregate demand curve at a price level of 140 and real GDP of $5.5 trillion. 
D)  The aggregate demand curve will shift right until it intersects the aggregate supply curve at a price level of 140 and real GDP of $7.5 trillion. 
E)  Inventories will accumulate and businesses will cut production until equilibrium is reached at a price level of 120 and real GDP of $6.5 trillion.

Question 16

Recovery from the 1990-91 recession occurred because wages fell and the aggregate supply curve shifted downward.

Accepted Answer

A) True 
 B)False

Question 17

If actual output is greater than the full-employment level of output,we should expect wages to increase over time.

Accepted Answer

A) True 
 B)False

Question 18

If the economy is on the aggregate supply curve but to the right of the aggregate demand curve,which of the following will be the first market force to lead the economy toward an equilibrium?

Accepted Answer

A)  At the current output level,prices will be too low and firms will increase their prices. 
B)  At the current price level,output will be too low,inventories will diminish,and firms will increase their production. 
C)  At the current output level,prices will be too low and firms will lower their prices. 
D)  At the current price level,output will be too high and so prices will drop so that output will drop. 
E)  At the current price level,output will be too high,inventories will pile up and firms will cut back on their production. 
A)  At the current output level,prices will be too low and firms will increase their prices. 
B)  At the current price level,output will be too low,inventories will diminish,and firms will increase their production. 
C)  At the current output level,prices will be too low and firms will lower their prices. 
D)  At the current price level,output will be too high and so prices will drop so that output will drop. 
E)  At the current price level,output will be too high,inventories will pile up and firms will cut back on their production.

Question 19

-Refer to Figure 15-16 above.Short run macro equilibrium occurs at a real GDP of

Accepted Answer

A)  $8.4 trillion and a price level of 110. 
B)  $8.4 trillion and a price level of 130. 
C)  $8.7 trillion and a price level of 150. 
D)  $8.1 trillion and a price level of 110. 
E)  $8.1 trillion and a price level of 150. 
A)  $8.4 trillion and a price level of 110. 
B)  $8.4 trillion and a price level of 130. 
C)  $8.7 trillion and a price level of 150. 
D)  $8.1 trillion and a price level of 110. 
E)  $8.1 trillion and a price level of 150.

Question 20

A negative supply shock causes stagflation in the short run.

Accepted Answer

A) True 
 B)False

Exam 27: Aggregate Demand and Aggregate Supply

If autonomous consumption decreases,which of the following combinations of events would be most likely to occur?

Supply and demand shocks are two different categories of

If government spending increases,which of the following would be most likely in the short and in the long run? (Both comparisons are with regard to the original price level/output combination. )

The aggregate demand curve tells us equilibrium real GDP at any level of income.

A negative demand shock would lead to a decline in both the price level and output in the short run.

The average percentage markup in the economy

If the government increases taxes,which of the following will occur in the short run?

The aggregate supply curve is

-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE1 to AE2,and from AD1 to AD2?

A positive demand shock may

If a change in investment spending is due to a change in the price level,then the aggregate demand curve will shift.

If the government announces a cut in the capital gains tax and it is expected that investment spending will increase as a result,which of the following are also likely?

The aggregate demand curve tells us equilibrium real GDP at any price level.

Which of the following is not a reason why wages respond slowly to changes in output?

-Refer to Figure 15-6.If the price level is currently at 140,what would we expect to occur in the short run?

Recovery from the 1990-91 recession occurred because wages fell and the aggregate supply curve shifted downward.

If actual output is greater than the full-employment level of output,we should expect wages to increase over time.

If the economy is on the aggregate supply curve but to the right of the aggregate demand curve,which of the following will be the first market force to lead the economy toward an equilibrium?

-Refer to Figure 15-16 above.Short run macro equilibrium occurs at a real GDP of

A negative supply shock causes stagflation in the short run.

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

Filters

-Refer to Figure 15-3.Which of the following most likely caused the shifts from AE₁ to AE₂,and from AD₁ to AD₂?