Question 1

There has been a decrease 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 2

If aggregate demand just increased, which of the following may have caused the increase?

Accepted Answer

A)  an increase in government purchases 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  an increase in imports 
A)  an increase in government purchases 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  an increase in imports

Question 3

The real business cycle model focuses on how

Accepted Answer

A)  wage and price stickiness explains fluctuations in real GDP. 
B)  the labor theory of value is the best measure of value of a good or service. 
C)  the Federal Reserve should adopt a monetary growth rule. 
D)  productivity shocks explain fluctuations in real GDP. 
A)  wage and price stickiness explains fluctuations in real GDP. 
B)  the labor theory of value is the best measure of value of a good or service. 
C)  the Federal Reserve should adopt a monetary growth rule. 
D)  productivity shocks explain fluctuations in real GDP.

Question 4

Interest rates in the economy have risen. How will this affect aggregate demand and equilibrium in the short run?

Accepted Answer

A)  Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. 
B)  Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. 
C)  Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. 
D)  Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. 
A)  Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. 
B)  Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. 
C)  Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. 
D)  Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise.

Question 5

What does the phrase "Keynesian revolution" refer to?

Accepted Answer

The Keynesian revolution is th

Question 6

At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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

Question 8

Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11 Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Mexico and ________ U.S. aggregate demand.

Accepted Answer

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

Question 9

How do changes in income tax policies affect aggregate demand?

Accepted Answer

A)  Higher taxes increase disposable income, consumption, and aggregate demand. 
B)  Higher taxes reduce disposable income, consumption, and aggregate demand. 
C)  Higher taxes increase corporate investment and aggregate demand. 
D)  Higher taxes increase aggregate supply and thus increase aggregate demand as well. 
A)  Higher taxes increase disposable income, consumption, and aggregate demand. 
B)  Higher taxes reduce disposable income, consumption, and aggregate demand. 
C)  Higher taxes increase corporate investment and aggregate demand. 
D)  Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 10

In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve.

Accepted Answer

Reducing the interest rate lowers the co

Question 11

Using an aggregate demand graph, illustrate the impact of an increase in the interest rate.

Accepted Answer

@#IMG-DLM& The increase in the interest rate will

Question 12

The level of real GDP in the long run is

Accepted Answer

A)  potential GDP. 
B)  affected by changes in the price level. 
C)  determined solely by aggregate demand. 
D)  the same as the level of nominal GDP in the long run. 
A)  potential GDP. 
B)  affected by changes in the price level. 
C)  determined solely by aggregate demand. 
D)  the same as the level of nominal GDP in the long run.

Question 13

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)  increases in housing prices 
C)  the financial crisis 
D)  a decline in government spending 
A)  falling oil prices 
B)  increases in housing prices 
C)  the financial crisis 
D)  a decline in government spending

Question 14

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, an increase in government 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 15

Higher personal income taxes

Accepted Answer

A)  increase aggregate demand. 
B)  increase disposable income. 
C)  decrease aggregate demand. 
D)  both B and C 
A)  increase aggregate demand. 
B)  increase disposable income. 
C)  decrease aggregate demand. 
D)  both B and C

Question 16

Explain how each of the following events would affect the long-run aggregate supply curve.
a. A lower price level
b. A decrease in the labor force
c. A decrease in the quantity of capital goods
d. Technological change

Accepted Answer

a. A lower price level would cause a mov

Question 17

If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

Accepted Answer

A)  stagflation. 
B)  long-run economic decline. 
C)  hyperinflation. 
D)  an increase in the natural rate of unemployment. 
A)  stagflation. 
B)  long-run economic decline. 
C)  hyperinflation. 
D)  an increase in the natural rate of unemployment.

Question 18

Which of the following would not be considered a positive addition to household wealth?

Accepted Answer

A)  the equity in one's home 
B)  1,000 shares of Microsoft stock 
C)  a credit card balance 
D)  the balance in your checking account 
A)  the equity in one's home 
B)  1,000 shares of Microsoft stock 
C)  a credit card balance 
D)  the balance in your checking account

Question 19

The short-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 20

What is a supply shock, and why might a supply shock lead to stagflation?

Accepted Answer

A supply shock is an unexpected event th

Exam 24: Aggregate Demand and Aggregate Supply Analysis

There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

If aggregate demand just increased, which of the following may have caused the increase?

The real business cycle model focuses on how

Interest rates in the economy have risen. How will this affect aggregate demand and equilibrium in the short run?

What does the phrase "Keynesian revolution" refer to?

At a short-run macroeconomic equilibrium, real GDP is always equal to potential GDP.

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

Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11 Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Mexico and ________ U.S. aggregate demand.

How do changes in income tax policies affect aggregate demand?

In September of 2007, the Federal Reserve Board Open Market Committee voted to lower interest rates for the first time that year. Explain how lower interest rates affect the aggregate demand curve.

Using an aggregate demand graph, illustrate the impact of an increase in the interest rate.

The level of real GDP in the long run is

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

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, an increase in government spending would be represented by a movement from

Higher personal income taxes

Explain how each of the following events would affect the long-run aggregate supply curve. a. A lower price level b. A decrease in the labor force c. A decrease in the quantity of capital goods d. Technological change

If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

Which of the following would not be considered a positive addition to household wealth?

The short-run aggregate supply curve is vertical.

What is a supply shock, and why might a supply shock lead to stagflation?

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

There has been a decrease in investment. As a result, real GDP will in the short run, and in the long run.

Last week, 13 Mexican pesos could purchase one U.S. dollar. This week, it takes 11 Mexican pesos to purchase one U.S. dollar. This change in the value of the dollar will exports from the United States to Mexico and U.S. aggregate demand.