Question 1

An increase in disposable income will shift the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

Proponents of the ________ model argue that the short-run supply curve is vertical.

Accepted Answer

A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model 
A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model

Question 3

German automobile exports were hurt in 2008 as a result of the recession. How would this decrease in exports have affected Germany's aggregate demand curve?

Accepted Answer

A)  The aggregate demand curve would have shifted to the right. 
B)  The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve. 
C)  The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve. 
D)  The aggregate demand curve would have shifted to the left. 
A)  The aggregate demand curve would have shifted to the right. 
B)  The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve. 
C)  The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve. 
D)  The aggregate demand curve would have shifted to the left.

Question 4

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Explain how the static aggregate demand and aggregate supply model gives us misleading results about the price level, particularly with respect to decreases in aggregate demand. Describe how the aggregate demand curve is different in the dynamic model as compared to the static model. Describe how potential GDP is different in the dynamic model as compared to the static model.

Accepted Answer

The static model incorrectly predicts th

Question 6

Suppose there has been an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level 
A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level

Question 7

The new classical model has as its central idea that

Accepted Answer

A)  wage and price stickiness explains fluctuations in real GDP. 
B)  workers and firms have rational expectations. 
C)  the Federal Reserve should adopt a monetary growth rule. 
D)  shifts in aggregate demand have no impact on real GDP. 
A)  wage and price stickiness explains fluctuations in real GDP. 
B)  workers and firms have rational expectations. 
C)  the Federal Reserve should adopt a monetary growth rule. 
D)  shifts in aggregate demand have no impact on real GDP.

Question 8

An increase in aggregate demand results in a(n) ________ in the ________.

Accepted Answer

A)  recession; long run 
B)  expansion; long run 
C)  expansion; short run 
D)  recession; short run 
A)  recession; long run 
B)  expansion; long run 
C)  expansion; short run 
D)  recession; short run

Question 9

Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

Accepted Answer

@#IMG-DLM& This illustrates an increase in the pri

Question 10

The proponents of ________ and ________ think that the Federal Reserve should adopt a constant monetary growth rule.

Accepted Answer

A)  new Keynesianism; the new classical model 
B)  the real business cycle model; Marxism 
C)  rational expectations; monetarism 
D)  the monetarist model; the Keynesian model 
A)  new Keynesianism; the new classical model 
B)  the real business cycle model; Marxism 
C)  rational expectations; monetarism 
D)  the monetarist model; the Keynesian model

Question 11

Figure 24-4  
-Refer to Figure 24-4. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

Accepted Answer

A)  0.3% 
B)  1.1% 
C)  2.7% 
D)  3.7% 
A)  0.3% 
B)  1.1% 
C)  2.7% 
D)  3.7%

Question 12

________ of unemployment during ________ make it easier for workers to ________ wages.

Accepted Answer

A)  High levels; a recession; accept lower 
B)  Low levels; an expansion; accept lower 
C)  Low levels; a recession; negotiate higher 
D)  High levels; an expansion; negotiate higher 
A)  High levels; a recession; accept lower 
B)  Low levels; an expansion; accept lower 
C)  Low levels; a recession; negotiate higher 
D)  High levels; an expansion; negotiate higher

Question 13

Explain how "menu costs" affect the slope of the short-run aggregate supply curve.

Accepted Answer

Menu costs make some prices sticky. As t

Question 14

Explain how each of the following events would affect the short-run aggregate supply curve.
a. A decrease in the price level
b. A decrease in what the price level is expected to be in the future
c. A price level that is currently lower than expected
d. An unexpected decrease in the price of an important raw material
e. A decrease in the labor force

Accepted Answer

a. A lower price level would cause a mov

Question 15

An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.

Accepted Answer

A)  decrease; a higher price level reduces consumption, investment, and net exports. 
B)  increase; a higher price level reduces consumption, investment, and net exports. 
C)  decrease; a higher price level increases consumption, investment, and net exports. 
D)  increase; a higher price level increases consumption, investment, and net exports. 
A)  decrease; a higher price level reduces consumption, investment, and net exports. 
B)  increase; a higher price level reduces consumption, investment, and net exports. 
C)  decrease; a higher price level increases consumption, investment, and net exports. 
D)  increase; a higher price level increases consumption, investment, and net exports.

Question 16

An increase in imports increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

The ________ curve has a positive slope because as prices of final goods and services rise, prices of inputs rise more slowly.

Accepted Answer

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

Question 18

Which of the following would cause the short-run aggregate supply curve to shift to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in inflation expectations 
C)  a technological advance 
D)  an increase in interest rates 
A)  an increase in the price level 
B)  a decrease in inflation expectations 
C)  a technological advance 
D)  an increase in interest rates

Question 19

Short-run macroeconomic equilibrium occurs when

Accepted Answer

A)  aggregate demand and short-run aggregate supply intersect. 
B)  the equilibrium lies on the long-run aggregate supply curve. 
C)  structural and frictional unemployment equal zero. 
D)  A and B 
A)  aggregate demand and short-run aggregate supply intersect. 
B)  the equilibrium lies on the long-run aggregate supply curve. 
C)  structural and frictional unemployment equal zero. 
D)  A and B

Question 20

Figure 24-4  
-Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?

Accepted Answer

A)  It will rise. 
B)  It will fall. 
C)  It will remain constant. 
D)  not enough information to answer the question 
A)  It will rise. 
B)  It will fall. 
C)  It will remain constant. 
D)  not enough information to answer the question

Exam 24: Aggregate Demand and Aggregate Supply Analysis

An increase in disposable income will shift the aggregate demand curve to the right.

Proponents of the ________ model argue that the short-run supply curve is vertical.

German automobile exports were hurt in 2008 as a result of the recession. How would this decrease in exports have affected Germany's aggregate demand curve?

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Suppose there has been an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

The new classical model has as its central idea that

An increase in aggregate demand results in a(n) ________ in the ________.

Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

The proponents of ________ and ________ think that the Federal Reserve should adopt a constant monetary growth rule.

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

________ of unemployment during ________ make it easier for workers to ________ wages.

Explain how "menu costs" affect the slope of the short-run aggregate supply curve.

An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________.

An increase in imports increases aggregate demand.

The ________ curve has a positive slope because as prices of final goods and services rise, prices of inputs rise more slowly.

Which of the following would cause the short-run aggregate supply curve to shift to the right?

Short-run macroeconomic equilibrium occurs when

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?

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

Suppose there has been an increase in investment. As a result, real GDP will in the short run, and in the long run.

An increase in aggregate demand results in a(n) in the .

The proponents of and think that the Federal Reserve should adopt a constant monetary growth rule.

of unemployment during make it easier for workers to wages.

An increase in the price level results in a(n) in the quantity of real GDP demanded because .