Question 1

A rapid increase in the price of oil will tend to

Accepted Answer

A)  shift short-run aggregate supply to the left. 
B)  shift long-run aggregate supply to the left. 
C)  shift long-run aggregate supply to the right. 
D)  shift aggregate demand to the right. 
A)  shift short-run aggregate supply to the left. 
B)  shift long-run aggregate supply to the left. 
C)  shift long-run aggregate supply to the right. 
D)  shift aggregate demand to the right.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following best describes the "interest rate effect"?

Accepted Answer

A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending. 
A)  An increase in the price level raises the interest rate and chokes off government spending. 
B)  An increase in the price level lowers the interest rate and chokes off government spending. 
C)  An increase in the price level raises the interest rate and chokes off investment and consumption spending. 
D)  An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 4

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

Accepted Answer

A)  business fixed investment spending rose and net export spending declined 
B)  consumption spending rose and residential construction spending declined 
C)  federal government purchases rose and changes in business inventories declined 
D)  net export spending rose and consumption spending declined 
A)  business fixed investment spending rose and net export spending declined 
B)  consumption spending rose and residential construction spending declined 
C)  federal government purchases rose and changes in business inventories declined 
D)  net export spending rose and consumption spending declined

Question 5

The level of real GDP in the long run is called

Accepted Answer

A)  potential GDP. 
B)  short-run GDP. 
C)  frictional GDP. 
D)  low-capacity GDP. 
A)  potential GDP. 
B)  short-run GDP. 
C)  frictional GDP. 
D)  low-capacity GDP.

Question 6

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, an increase in the expected future price level 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 7

If the U.S. dollar decreases 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 8

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)  the leftward shift of the short-run aggregate supply curve that occurs after a recession 
B)  the rightward shift of the short-run aggregate supply curve that occurs after a recession 
C)  the leftward shift of the aggregate demand curve that occurs after a recession 
D)  the rightward shift of the aggregate demand curve that occurs after a recession 
A)  the leftward shift of the short-run aggregate supply curve that occurs after a recession 
B)  the rightward shift of the short-run aggregate supply curve that occurs after a recession 
C)  the leftward shift of the aggregate demand curve that occurs after a recession 
D)  the rightward shift of the aggregate demand curve that occurs after a recession

Question 9

Using an aggregate demand graph, illustrate the impact of an increase in the growth rate of U.S. GDP relative to the growth rate of foreign GDP.

Accepted Answer

@#IMG-DLM& The increase in the growth rate of U.S.

Question 10

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Accepted Answer

A)  imports; exports; net exports 
B)  exports; imports; net exports 
C)  net exports; exports; imports 
D)  net exports; imports; exports 
A)  imports; exports; net exports 
B)  exports; imports; net exports 
C)  net exports; exports; imports 
D)  net exports; imports; exports

Question 11

Stagflation occurs when inflation ________ and GDP ________.

Accepted Answer

A)  rises; rises 
B)  rises; falls 
C)  falls; rises 
D)  falls; falls 
A)  rises; rises 
B)  rises; falls 
C)  falls; rises 
D)  falls; falls

Question 12

Studies have shown that

Accepted Answer

A)  firms often cut nominal wages during recessions and allow inflation to gradually increase real wages. 
B)  firms are reluctant to cut nominal wages during recessions but instead increase workers' nominal wages and allow inflation to gradually increase real wages. 
C)  firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages. 
D)  firms often freeze workers' nominal wages during a recession and keep the wages frozen well after the recession has ended. 
A)  firms often cut nominal wages during recessions and allow inflation to gradually increase real wages. 
B)  firms are reluctant to cut nominal wages during recessions but instead increase workers' nominal wages and allow inflation to gradually increase real wages. 
C)  firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages. 
D)  firms often freeze workers' nominal wages during a recession and keep the wages frozen well after the recession has ended.

Question 13

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, a decrease in the expected future price level 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 14

The aggregate demand curve shows the relationship between the ________ and ________.

Accepted Answer

A)  inflation rate; quantity of real GDP demanded 
B)  real interest rate: quantity of real GDP supplied 
C)  nominal interest rate; quantity of real GDP demanded 
D)  price level; quantity of real GDP demanded 
A)  inflation rate; quantity of real GDP demanded 
B)  real interest rate: quantity of real GDP supplied 
C)  nominal interest rate; quantity of real GDP demanded 
D)  price level; quantity of real GDP demanded

Question 15

The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

Accepted Answer

A)  positive; final goods and services; inputs 
B)  infinite; final goods and services; inputs 
C)  positive; inputs; final goods and services 
D)  infinite; inputs; final goods and services 
A)  positive; final goods and services; inputs 
B)  infinite; final goods and services; inputs 
C)  positive; inputs; final goods and services 
D)  infinite; inputs; final goods and services

Question 16

After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.

Accepted Answer

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

Question 17

Ceteris paribus, in the long run, a negative supply shock causes

Accepted Answer

A)  the long-run aggregate supply curve to shift to the left. 
B)  the price level to rise initially, and then return to its lower level. 
C)  unemployment to fall below its short-run level. 
D)  equilibrium real GDP to fall. 
A)  the long-run aggregate supply curve to shift to the left. 
B)  the price level to rise initially, and then return to its lower level. 
C)  unemployment to fall below its short-run level. 
D)  equilibrium real GDP to fall.

Question 18

A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.

Accepted Answer

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

Question 19

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, an increase in the capital stock 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 20

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Accepted Answer

A)  the price level; real GDP 
B)  real GDP; real GDP 
C)  the price level; the price level 
D)  real GDP; the price level 
A)  the price level; real GDP 
B)  real GDP; real GDP 
C)  the price level; the price level 
D)  real GDP; the price level

Exam 24: Aggregate Demand and Aggregate Supply Analysis

A rapid increase in the price of oil will tend to

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

Which of the following best describes the "interest rate effect"?

During the recession of 2007-2009 in the United States, ________ relative to potential GDP.

The level of real GDP in the long run is called

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in the expected future price level would be represented by a movement from

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

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Using an aggregate demand graph, illustrate the impact of an increase in the growth rate of U.S. GDP relative to the growth rate of foreign GDP.

When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise.

Stagflation occurs when inflation ________ and GDP ________.

Studies have shown that

Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, a decrease in the expected future price level would be represented by a movement from

The aggregate demand curve shows the relationship between the ________ and ________.

The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.

Ceteris paribus, in the long run, a negative supply shock causes

A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.

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

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

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

When the price level in the United States falls relative to the price level of other countries, will fall, will rise, and will rise.

Stagflation occurs when inflation and GDP .

The aggregate demand curve shows the relationship between the and .

The short-run aggregate supply curve has a(n) slope because as prices of rise, prices of rise more slowly.

After an unexpected in the price of oil, the long-run adjustment decreases the price level and the unemployment rate as they return to their original levels.

A decrease in the price level results in a(n) in the quantity of real GDP demanded because a lower price level consumption, investment, and net exports.

A decrease in aggregate demand causes a decrease in only in the short run, but causes a decrease in in both the short run and the long run.