Question 1

-Refer to Figure 15-15.Suppose the economy is producing Y1 and a supply shock moves the economy from AS1 to AS2.In the long run,we would expect

Accepted Answer

A)  falling wages to shift aggregate supply back to AS1 
B)  rising wages to cause a further upward shift of the aggregate supply curve 
C)  the decrease in real GDP to shift the aggregate demand curve to the left 
D)  the increase in the price level to decrease aggregate demand 
E)  output to remain at the new equilibrium 
A)  falling wages to shift aggregate supply back to AS1 
B)  rising wages to cause a further upward shift of the aggregate supply curve 
C)  the decrease in real GDP to shift the aggregate demand curve to the left 
D)  the increase in the price level to decrease aggregate demand 
E)  output to remain at the new equilibrium

Question 2

If the Fed had not changed the money supply after the recession in the early 1990s,then the long run effects would have been

Accepted Answer

A)  a return to the original output and price level 
B)  increased long run GDP equilibrium and price level 
C)  unchanged long run output,but an increased price level 
D)  a decreased long run output and price level 
E)  a return to the original long run output,but a decreased price level 
A)  a return to the original output and price level 
B)  increased long run GDP equilibrium and price level 
C)  unchanged long run output,but an increased price level 
D)  a decreased long run output and price level 
E)  a return to the original long run output,but a decreased price level

Question 3

In the short run,the price level will rise whenever there is an economy-wide decrease in unit costs.

Accepted Answer

A) True 
 B)False

Question 4

A decrease in the price level leads to which of the following sequences?

Accepted Answer

A)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve. 
B)  The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve. 
C)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve. 
D)  The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve. 
E)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement upward along the aggregate demand curve. 
A)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve. 
B)  The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve. 
C)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve. 
D)  The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve. 
E)  The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement upward along the aggregate demand curve.

Question 5

The 1990-91 recession was caused by a Federal Reserve policy change designed to minimize the adverse economic effects of the Gulf War.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  A change in the nominal wage 
B)  Changes in business decision making strategies 
C)  Changes in the capital stock 
D)  The rigidity of the price level 
E)  Changes in inventories 
A)  A change in the nominal wage 
B)  Changes in business decision making strategies 
C)  Changes in the capital stock 
D)  The rigidity of the price level 
E)  Changes in inventories

Question 7

Which of the following would cause the aggregate demand curve to shift to the right?

Accepted Answer

A)  An increase in the price level 
B)  A decrease in the price level 
C)  An increase in government purchases 
D)  An increase in taxes 
E)  An increase in the interest rate 
A)  An increase in the price level 
B)  A decrease in the price level 
C)  An increase in government purchases 
D)  An increase in taxes 
E)  An increase in the interest rate

Question 8

If a new insect invasion devastates crops all across the United States,which of the following would most likely occur in the short run?

Accepted Answer

A)  Unit costs would decrease and the economy would move upward along the aggregate supply curve. 
B)  Unit costs would increase and the aggregate supply curve would shift downward. 
C)  Unit costs would increase and there would be movement along the aggregate supply curve. 
D)  Unit costs would decrease and the aggregate supply curve would shift upward. 
E)  Unit costs would increase and the aggregate supply curve would shift upward. 
A)  Unit costs would decrease and the economy would move upward along the aggregate supply curve. 
B)  Unit costs would increase and the aggregate supply curve would shift downward. 
C)  Unit costs would increase and there would be movement along the aggregate supply curve. 
D)  Unit costs would decrease and the aggregate supply curve would shift upward. 
E)  Unit costs would increase and the aggregate supply curve would shift upward.

Question 9

The economy's long run aggregate supply curve

Accepted Answer

A)  is horizontal,indicating that the economy always reaches full employment in the long run. 
B)  is vertical at the full-employment level of output,indicating that the price level is constant in the long run. 
C)  is horizontal,indicating that prices are constant in the long run. 
D)  is vertical at the full-employment level of output,indicating that the economy always reaches full employment in the long run. 
E)  is vertical at the zero budget deficit level of output. 
A)  is horizontal,indicating that the economy always reaches full employment in the long run. 
B)  is vertical at the full-employment level of output,indicating that the price level is constant in the long run. 
C)  is horizontal,indicating that prices are constant in the long run. 
D)  is vertical at the full-employment level of output,indicating that the economy always reaches full employment in the long run. 
E)  is vertical at the zero budget deficit level of output.

Question 10

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

Question 11

Equilibrium GDP

Accepted Answer

A)  is not affected by nominal wage adjustments 
B)  represents the level of output at which public welfare is maximized 
C)  in the long run is equal to the average of the short-run GDP equilibria 
D)  is influenced by long-run adjustments in the labor market 
E)  falls if aggregate demand increases 
A)  is not affected by nominal wage adjustments 
B)  represents the level of output at which public welfare is maximized 
C)  in the long run is equal to the average of the short-run GDP equilibria 
D)  is influenced by long-run adjustments in the labor market 
E)  falls if aggregate demand increases

Question 12

The long-run effect of reducing the government budget deficit would be

Accepted Answer

A)  a higher price level and a lower level of output 
B)  a lower price level and a lower level of output 
C)  a higher price level and a higher level of output 
D)  a higher price level with unchanged output 
E)  a lower price level with unchanged output 
A)  a higher price level and a lower level of output 
B)  a lower price level and a lower level of output 
C)  a higher price level and a higher level of output 
D)  a higher price level with unchanged output 
E)  a lower price level with unchanged output

Question 13

The aggregate demand curve tells us the equilibrium level of real GDP corresponding to any price level.

Accepted Answer

A) True 
 B)False

Question 14

The increase in world oil prices in 1990 initially

Accepted Answer

A)  caused the AS curve to shift upward as wage rates quickly adjusted 
B)  increased the level of GDP associated with high price levels 
C)  shifted the aggregate expenditure line upward 
D)  caused the AS curve to shift upward due to higher costs per unit of output 
E)  caused the AD curve to shift leftward due to an increasing interest rate 
A)  caused the AS curve to shift upward as wage rates quickly adjusted 
B)  increased the level of GDP associated with high price levels 
C)  shifted the aggregate expenditure line upward 
D)  caused the AS curve to shift upward due to higher costs per unit of output 
E)  caused the AD curve to shift leftward due to an increasing interest rate

Question 15

Which of the following would not cause a movement along the AD curve?

Accepted Answer

A)  An increase in the price level. 
B)  A decrease in the price level. 
C)  A change in the interest rate caused by a change in the price level. 
D)  A change in autonomous consumption 
E)  Both a change in the interest rate caused by a change in the price level,and a change in autonomous consumption. 
A)  An increase in the price level. 
B)  A decrease in the price level. 
C)  A change in the interest rate caused by a change in the price level. 
D)  A change in autonomous consumption 
E)  Both a change in the interest rate caused by a change in the price level,and a change in autonomous consumption.

Question 16

Stagflation is caused by

Accepted Answer

A)  a negative supply shock. 
B)  a positive supply shock. 
C)  a negative demand shock. 
D)  a positive demand shock. 
E)  none of the above. 
A)  a negative supply shock. 
B)  a positive supply shock. 
C)  a negative demand shock. 
D)  a positive demand shock. 
E)  none of the above.

Question 17

If the cost per unit of output for a particular product is $10 and the product sells for $20,what is the percentage markup over cost per unit?

Accepted Answer

A)  200 percent 
B)  10 percent 
C)  100 percent 
D)  20 percent 
E)  50 percent 
A)  200 percent 
B)  10 percent 
C)  100 percent 
D)  20 percent 
E)  50 percent

Question 18

If consumers enjoy an increase in wealth due to stock market gains,which of the following combinations of events will mostly likely take place?

Accepted Answer

A)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve 
B)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
C)  An upward shift of the aggregate expenditure line and a leftward shift of the AD curve. 
D)  An upward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
E)  An upward shift of the aggregate expenditure line and no shift in the AD curve. 
A)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve 
B)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
C)  An upward shift of the aggregate expenditure line and a leftward shift of the AD curve. 
D)  An upward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
E)  An upward shift of the aggregate expenditure line and no shift in the AD curve.

Question 19

-Refer to Figure 15-7.If the economy is currently at a price level of 120 and real GDP is $6.5 trillion,an increase in government purchases will,in the short run,

Accepted Answer

A)  shift the aggregate demand curve rightward,increasing both the price level and real GDP 
B)  shift the aggregate demand curve leftward,decreasing both the price level and real GDP 
C)  shift the aggregate supply curve upward,increasing the price level and decreasing real GDP 
D)  shift the aggregate supply curve downward,decreasing the price level and increasing real GDP 
E)  have no effect on aggregate demand because of crowding out 
A)  shift the aggregate demand curve rightward,increasing both the price level and real GDP 
B)  shift the aggregate demand curve leftward,decreasing both the price level and real GDP 
C)  shift the aggregate supply curve upward,increasing the price level and decreasing real GDP 
D)  shift the aggregate supply curve downward,decreasing the price level and increasing real GDP 
E)  have no effect on aggregate demand because of crowding out

Question 20

With the self-correcting mechanism,if a negative demand shock occurs,

Accepted Answer

A)  a decrease in wage rates will lead to a decrease in the price level so that the economy returns to full employment 
B)  the price level will increase,causing equilibrium GDP to return to its original level 
C)  the wage rate will eventually increase,restoring GDP to its full-employment level 
D)  the price level will remain constant 
E)  there will be no effect in the long run 
A)  a decrease in wage rates will lead to a decrease in the price level so that the economy returns to full employment 
B)  the price level will increase,causing equilibrium GDP to return to its original level 
C)  the wage rate will eventually increase,restoring GDP to its full-employment level 
D)  the price level will remain constant 
E)  there will be no effect in the long run

Exam 27: Aggregate Demand and Aggregate Supply

-Refer to Figure 15-15.Suppose the economy is producing Y1 and a supply shock moves the economy from AS1 to AS2.In the long run,we would expect

If the Fed had not changed the money supply after the recession in the early 1990s,then the long run effects would have been

In the short run,the price level will rise whenever there is an economy-wide decrease in unit costs.

A decrease in the price level leads to which of the following sequences?

The 1990-91 recession was caused by a Federal Reserve policy change designed to minimize the adverse economic effects of the Gulf War.

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

Which of the following would cause the aggregate demand curve to shift to the right?

If a new insect invasion devastates crops all across the United States,which of the following would most likely occur in the short run?

The economy's long run aggregate supply curve

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

Equilibrium GDP

The long-run effect of reducing the government budget deficit would be

The aggregate demand curve tells us the equilibrium level of real GDP corresponding to any price level.

The increase in world oil prices in 1990 initially

Which of the following would not cause a movement along the AD curve?

Stagflation is caused by

If the cost per unit of output for a particular product is $10 and the product sells for $20,what is the percentage markup over cost per unit?

If consumers enjoy an increase in wealth due to stock market gains,which of the following combinations of events will mostly likely take place?

-Refer to Figure 15-7.If the economy is currently at a price level of 120 and real GDP is $6.5 trillion,an increase in government purchases will,in the short run,

With the self-correcting mechanism,if a negative demand shock occurs,

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 15-15.Suppose the economy is producing Y₁ and a supply shock moves the economy from AS₁ to AS₂.In the long run,we would expect

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