Question 1

Stagflation is often a result of

Accepted Answer

A)  a negative supply shock. 
B)  a decrease in aggregate demand. 
C)  an increase in aggregate demand. 
D)  an increase in aggregate supply. 
A)  a negative supply shock. 
B)  a decrease in aggregate demand. 
C)  an increase in aggregate demand. 
D)  an increase in aggregate supply.

Question 2

Most recessions in the United States since World War II have begun with

Accepted Answer

A)  a decline in residential construction. 
B)  a rapid increase in the price level. 
C)  a substantial number of bank failures. 
D)  a stock market crash. 
A)  a decline in residential construction. 
B)  a rapid increase in the price level. 
C)  a substantial number of bank failures. 
D)  a stock market crash.

Question 3

Which of the following is considered a negative supply shock?

Accepted Answer

A)  increasing investment in the economy causes the capital stock to rise 
B)  an unexpected increase in the price of natural gas 
C)  a decline in wages 
D)  an improvement in technology 
A)  increasing investment in the economy causes the capital stock to rise 
B)  an unexpected increase in the price of natural gas 
C)  a decline in wages 
D)  an improvement in technology

Question 4

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

Accepted Answer

A)  SRAS1 to SRAS2. 
B)  SRAS2 to SRAS1. 
C)  point A to point B. 
D)  point B to point A. 
A)  SRAS1 to SRAS2. 
B)  SRAS2 to SRAS1. 
C)  point A to point B. 
D)  point B to point A.

Question 5

Using aggregate demand and aggregate supply, explain what happens in the short run if the Federal Reserve raises interest rates in the economy. Be sure to detail what happens to aggregate demand, the price level, the level of GDP, and unemployment. Assume that the economy is at full employment before the interest rate increase.

Accepted Answer

An increase in the interest rate will ca

Question 6

As the recession persisted into 2009, the unemployment rate in the United States rose to ________, the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Accepted Answer

A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent 
A)  5.5 percent 
B)  9.3 percent 
C)  17.6 percent 
D)  25.1 percent

Question 7

Figure 24-4  
-Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

Accepted Answer

A)  2.5% 
B)  7.3% 
C)  8.0% 
D)  10.0% 
A)  2.5% 
B)  7.3% 
C)  8.0% 
D)  10.0%

Question 8

If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve?

Accepted Answer

A)  This will move the economy up along a stationary aggregate demand curve. 
B)  This will move the economy down along a stationary aggregate demand curve. 
C)  This will shift the aggregate demand curve to the left. 
D)  This will shift the aggregate demand curve to the right. 
A)  This will move the economy up along a stationary aggregate demand curve. 
B)  This will move the economy down along a stationary aggregate demand curve. 
C)  This will shift the aggregate demand curve to the left. 
D)  This will shift the aggregate demand curve to the right.

Question 9

According to the real business cycle model,

Accepted Answer

A)  increases in aggregate demand raise GDP. 
B)  increases in aggregate demand lower GDP. 
C)  increases in aggregate demand do not affect GDP. 
D)  increases in aggregate demand lower the price level. 
A)  increases in aggregate demand raise GDP. 
B)  increases in aggregate demand lower GDP. 
C)  increases in aggregate demand do not affect GDP. 
D)  increases in aggregate demand lower the price level.

Question 10

In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS,

Accepted Answer

A)  inflation occurs. 
B)  deflation occurs. 
C)  stagflation occurs. 
D)  disinflation occurs. 
A)  inflation occurs. 
B)  deflation occurs. 
C)  stagflation occurs. 
D)  disinflation occurs.

Question 11

Figure 24-4  
-Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

Accepted Answer

A)  8% 
B)  9.1% 
C)  10% 
D)  12% 
A)  8% 
B)  9.1% 
C)  10% 
D)  12%

Question 12

In the long run,

Accepted Answer

A)  GDP > potential GDP. 
B)  unemployment is at its natural rate. 
C)  LRAS and SRAS lie on the same line. 
D)  the inflation rate is zero. 
A)  GDP > potential GDP. 
B)  unemployment is at its natural rate. 
C)  LRAS and SRAS lie on the same line. 
D)  the inflation rate is zero.

Question 13

Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level.

Accepted Answer

When an economy enters a recession, sale

Question 14

Long-run macroeconomic equilibrium occurs when

Accepted Answer

A)  aggregate demand equals short-run aggregate supply. 
B)  aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve. 
C)  structural and frictional unemployment equals zero. 
D)  output is above potential GDP. 
A)  aggregate demand equals short-run aggregate supply. 
B)  aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve. 
C)  structural and frictional unemployment equals zero. 
D)  output is above potential GDP.

Question 15

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A)  raises; recession; lowers; expansion 
B)  raises; expansion raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion 
A)  raises; recession; lowers; expansion 
B)  raises; expansion raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion

Question 16

Potential GDP is also referred to as

Accepted Answer

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

Question 17

Using the aggregate supply and demand model, illustrate what happens in the long run when the economy suffers a supply shock. Begin your analysis by assuming the economy has suffered the supply shock in the short run, but has not yet adjusted to it in the long run.

Accepted Answer

@#IMG-DLM& The economy is at point B with the pric

Question 18

If workers and firms have rational expectations, they form their expectations using

Accepted Answer

A)  all the information available to them. 
B)  only information from the past. 
C)  only information provided to them by the government. 
D)  only information gathered from random sources. 
A)  all the information available to them. 
B)  only information from the past. 
C)  only information provided to them by the government. 
D)  only information gathered from random sources.

Question 19

The new Keynesians emphasize the importance of

Accepted Answer

A)  rational expectations. 
B)  the monetary growth rule. 
C)  real causes of the business cycle. 
D)  sticky wages and prices. 
A)  rational expectations. 
B)  the monetary growth rule. 
C)  real causes of the business cycle. 
D)  sticky wages and prices.

Question 20

A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level.

Accepted Answer

A) True 
 B)False

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Stagflation is often a result of

Most recessions in the United States since World War II have begun with

Which of the following is considered a negative supply shock?

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

As the recession persisted into 2009, the unemployment rate in the United States rose to ________, the highest rate since the recession of 2001-2002 and the second highest since the Great Depression.

Figure 24-4 -Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve?

According to the real business cycle model,

In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS,

Figure 24-4 -Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

In the long run,

Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level.

Long-run macroeconomic equilibrium occurs when

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Potential GDP is also referred to as

Using the aggregate supply and demand model, illustrate what happens in the long run when the economy suffers a supply shock. Begin your analysis by assuming the economy has suffered the supply shock in the short run, but has not yet adjusted to it in the long run.

If workers and firms have rational expectations, they form their expectations using

The new Keynesians emphasize the importance of

A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level.

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

The automatic mechanism the price level in the case of and the price level in the case of .