Question 1

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

Accepted Answer

A)  falling oil prices 
B)  an increase in net exports 
C)  the end of the housing bubble 
D)  a decline in government spending 
A)  falling oil prices 
B)  an increase in net exports 
C)  the end of the housing bubble 
D)  a decline in government spending

Question 2

Because of the slope of the aggregate demand curve, we can say that

Accepted Answer

A)  a decrease in the price level leads to a lower level of real GDP demanded. 
B)  an increase in the price level leads to no change in the level of real GDP demanded. 
C)  a decrease in the price level leads to a higher level of real GDP demanded. 
D)  an increase in the price level leads to a higher level of real GDP demanded. 
A)  a decrease in the price level leads to a lower level of real GDP demanded. 
B)  an increase in the price level leads to no change in the level of real GDP demanded. 
C)  a decrease in the price level leads to a higher level of real GDP demanded. 
D)  an increase in the price level leads to a higher level of real GDP demanded.

Question 3

Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,

Accepted Answer

A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%. 
A)  workers will be willing to take lower wages next year. 
B)  the purchasing power of wages will rise if wages increase by 3%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 3%.

Question 4

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

Accepted Answer

A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A. 
A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A.

Question 5

Why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

Accepted Answer

A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices. 
A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.

Question 6

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A)  Potential real GDP increases continuously. 
B)  The aggregate demand curve shifts to the right during most periods. 
C)  The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential real GDP decrease continuously. 
A)  Potential real GDP increases continuously. 
B)  The aggregate demand curve shifts to the right during most periods. 
C)  The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages. 
D)  Aggregate demand and potential real GDP decrease continuously.

Question 7

The ________ shows the relationship between the price level and quantity of real GDP demanded.

Accepted Answer

A)  consumer price index 
B)  aggregate expenditure line 
C)  45-degree line 
D)  aggregate demand curve 
A)  consumer price index 
B)  aggregate expenditure line 
C)  45-degree line 
D)  aggregate demand curve

Question 8

Briefly describe monetarism and the monetary growth rule.

Accepted Answer

Monetarism refers to the macroeconomic t

Question 9

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

Accepted Answer

The long-run effects differ from the sho

Question 10

The level of aggregate supply in the long run is not affected by

Accepted Answer

A)  changes in technology. 
B)  changes in the capital stock. 
C)  changes in the price level. 
D)  changes in the number of workers. 
A)  changes in technology. 
B)  changes in the capital stock. 
C)  changes in the price level. 
D)  changes in the number of workers.

Question 11

An increase in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase 
A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase

Question 12

What is potential GDP?

Accepted Answer

A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant. 
A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant.

Question 13

New Keynesian macroeconomic theory emphasizes the role of "sticky" prices in the economy.

Accepted Answer

A) True 
 B)False

Question 14

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in interest rates would be represented by a movement from

Accepted Answer

A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A. 
A)  AD1 to AD2. 
B)  AD2 to AD1. 
C)  point A to point B. 
D)  point B to point A.

Question 15

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

Accepted Answer

Aggregate demand inc

Question 16

Which of the following will shift the aggregate demand curve to the right, ceteris paribus?

Accepted Answer

A)  an increase in interest rates 
B)  a decrease in disposable income 
C)  a decrease in expected profits for firms 
D)  an increase in net exports 
A)  an increase in interest rates 
B)  a decrease in disposable income 
C)  a decrease in expected profits for firms 
D)  an increase in net exports

Question 17

Full-employment GDP is also known as

Accepted Answer

A)  realized GDP. 
B)  potential GDP. 
C)  politico-economic GDP. 
D)  balanced-budget GDP. 
A)  realized GDP. 
B)  potential GDP. 
C)  politico-economic GDP. 
D)  balanced-budget GDP.

Question 18

The main result of the monetarist model is that

Accepted Answer

A)  workers and firms have rational expectations. 
B)  the quantity of money should be increased at a constant rate. 
C)  productivity shocks explain fluctuations in real GDP. 
D)  the economy is slow to adjust to sticky wages and prices. 
A)  workers and firms have rational expectations. 
B)  the quantity of money should be increased at a constant rate. 
C)  productivity shocks explain fluctuations in real GDP. 
D)  the economy is slow to adjust to sticky wages and prices.

Question 19

According to the "wealth effect," when the ________ falls, the ________ rises.

Accepted Answer

A)  inflation rate; nominal value of household assets 
B)  unemployment rate; average level of household income 
C)  price level; the nominal value of household wealth 
D)  price level; the real value of household wealth 
A)  inflation rate; nominal value of household assets 
B)  unemployment rate; average level of household income 
C)  price level; the nominal value of household wealth 
D)  price level; the real value of household wealth

Question 20

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

Accepted Answer

A)  aggregate demand curve 
B)  short-run aggregate supply curve 
C)  long-run aggregate supply curve 
D)  short-run and long-run aggregate supply curves 
A)  aggregate demand curve 
B)  short-run aggregate supply curve 
C)  long-run aggregate supply curve 
D)  short-run and long-run aggregate supply curves

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?

Because of the slope of the aggregate demand curve, we can say that

Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

Why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

The ________ shows the relationship between the price level and quantity of real GDP demanded.

Briefly describe monetarism and the monetary growth rule.

Why are the long-run effects of an increase in aggregate demand on price and output different from the short-run effects?

The level of aggregate supply in the long run is not affected by

An increase in investment causes the price level to ________ in the short run and ________ in the long run.

What is potential GDP?

New Keynesian macroeconomic theory emphasizes the role of "sticky" prices in the economy.

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in interest rates would be represented by a movement from

In the dynamic aggregate demand and aggregate supply model, what is the result of aggregate demand increasing faster than potential real GDP?

Which of the following will shift the aggregate demand curve to the right, ceteris paribus?

Full-employment GDP is also known as

The main result of the monetarist model is that

According to the "wealth effect," when the ________ falls, the ________ rises.

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

An increase in investment causes the price level to in the short run and in the long run.

According to the "wealth effect," when the falls, the rises.