Question 1

Explain why the long-run aggregate supply curve is vertical.

Accepted Answer

The long-run aggregate supply curve is v

Question 2

In the dynamic aggregated demand and aggregate supply model, inflation occurs if

Accepted Answer

A)  AD shifts faster than SRAS. 
B)  AD shifts slower than SRAS. 
C)  SRAS shifts faster than AD. 
D)  LRAS shifts faster than AD. 
A)  AD shifts faster than SRAS. 
B)  AD shifts slower than SRAS. 
C)  SRAS shifts faster than AD. 
D)  LRAS shifts faster than AD.

Question 3

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future income 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 4

What variables cause the short-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

Accepted Answer

The variables that will cause the short-

Question 5

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should

Accepted Answer

A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve. 
A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve.

Question 6

President Bush lowered income taxes for individuals in 2001. Explain how lower income taxes affect the aggregate demand curve.

Accepted Answer

Lowering the income tax increases the am

Question 7

An increase in the price level causes a movement down the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 8

Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock.

Accepted Answer

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

Question 9

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, a decrease 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 10

Figure 24-1  
-Refer to Figure 24-1. Ceteris paribus, a decrease 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 11

The recession of 2007-2009 began in ________, with the end of the economic expansion that had begun in ________.

Accepted Answer

A)  January 2007; April 1984 
B)  December 2007; November 2001 
C)  July 2007; August 2006 
D)  March 2007; March 1995 
A)  January 2007; April 1984 
B)  December 2007; November 2001 
C)  July 2007; August 2006 
D)  March 2007; March 1995

Question 12

Figure 24-2  
-Refer to Figure 24-2. Ceteris paribus, a decrease in the 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 13

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point A. If government spending increases in the economy, where will the eventual long-run equilibrium be?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 14

Explain whether FedEx's sales are likely to fluctuate more or less than the sales of each of the following firms as the economy moves from recession to expansion and back to recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer)
GameStop (video game sales and rentals)

Accepted Answer

FedEx's sales are likely to fluctuate du

Question 15

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

Accepted Answer

A)  Decreases in the price level raise the interest rate and increase consumption spending. 
B)  Decreases in the price level raise the interest rate and increase investment spending. 
C)  Decreases in the U.S. price level relative to the price level in other countries lower net exports. 
D)  Decreases in the price level raise real wealth and increase consumption spending. 
A)  Decreases in the price level raise the interest rate and increase consumption spending. 
B)  Decreases in the price level raise the interest rate and increase investment spending. 
C)  Decreases in the U.S. price level relative to the price level in other countries lower net exports. 
D)  Decreases in the price level raise real wealth and increase consumption spending.

Question 16

The business cycle ________ on FedEx since the company's inception over 40 years ago.

Accepted Answer

A)  has had virtually no effect 
B)  has always had a negative effect 
C)  has had a large effect 
D)  has always had a positive effect 
A)  has had virtually no effect 
B)  has always had a negative effect 
C)  has had a large effect 
D)  has always had a positive effect

Question 17

An adverse supply shock causes the short-run aggregate supply curve to shift left, increasing the price level.

Accepted Answer

A) True 
 B)False

Question 18

Figure 24-3  
-Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 19

The long-run aggregate supply curve

Accepted Answer

A)  has a negative slope. 
B)  has a steep but positive slope. 
C)  is horizontal. 
D)  is vertical. 
A)  has a negative slope. 
B)  has a steep but positive slope. 
C)  is horizontal. 
D)  is vertical.

Question 20

During 2008, oil price increases

Accepted Answer

A)  shifted the short-run aggregate supply curve farther to the left than similar increases had 30 years earlier. 
B)  shifted the aggregate demand curve farther to the right than similar increases had 30 years earlier. 
C)  did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier. 
D)  shifted the aggregate demand curve farther to the left than similar increases had 30 years earlier. 
A)  shifted the short-run aggregate supply curve farther to the left than similar increases had 30 years earlier. 
B)  shifted the aggregate demand curve farther to the right than similar increases had 30 years earlier. 
C)  did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier. 
D)  shifted the aggregate demand curve farther to the left than similar increases had 30 years earlier.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Explain why the long-run aggregate supply curve is vertical.

In the dynamic aggregated demand and aggregate supply model, inflation occurs if

Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future income would be represented by a movement from

What variables cause the short-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the short-run aggregate supply curve to shift to the right or to the left.

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should

President Bush lowered income taxes for individuals in 2001. Explain how lower income taxes affect the aggregate demand curve.

An increase in the price level causes a movement down the aggregate demand curve.

Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock.

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

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

The recession of 2007-2009 began in ________, with the end of the economic expansion that had begun in ________.

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

Figure 24-3 -Refer to Figure 24-3. Suppose the economy is at point A. If government spending increases in the economy, where will the eventual long-run equilibrium be?

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

The business cycle ________ on FedEx since the company's inception over 40 years ago.

An adverse supply shock causes the short-run aggregate supply curve to shift left, increasing the price level.

Figure 24-3 -Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?

The long-run aggregate supply curve

During 2008, oil price increases

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

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The recession of 2007-2009 began in , with the end of the economic expansion that had begun in .