Question 1

Explain the three reasons the aggregate demand curve slopes downward.

Accepted Answer

The three reasons are the wealth effect,

Question 2

Article Summary
According to the International Energy Agency (IEA), increased oil production resulting from U.S. shale oil has invigorated the North American oil industry and has created a global supply shock. The shale oil and gas industry has generated tens of billions of dollars in revenues and hundreds of thousands of new jobs, and could result in the United States changing from being the world's largest oil importer to a net exporter within a few years. An IEA forecast predicts that because of shale oil, the United States will become the world's largest oil producer by 2017, with supply growing by 3.9 million barrels per day from 2012-2018.
Source: Denise Roland, and AFP, "US shale energy creates global oil 'supply shock'," Telegraph, May 14, 2013.
-Refer to the Article Summary. The supply shock mentioned in the article summary may well result in a decrease in the price of oil. After an unexpected decrease in the price of oil, the long-run adjustment ________ the price level and ________ the unemployment rate as they return to their original levels.

Accepted Answer

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

Question 3

Stagflation occurs when

Accepted Answer

A)  inflation rises and GDP rises. 
B)  inflation falls and GDP rises. 
C)  inflation rises and GDP falls. 
D)  inflation falls and GDP falls. 
A)  inflation rises and GDP rises. 
B)  inflation falls and GDP rises. 
C)  inflation rises and GDP falls. 
D)  inflation falls and GDP falls.

Question 4

The proponents of rational expectations and monetarism think that the Federal Reserve should adopt

Accepted Answer

A)  an inflation target. 
B)  a monetary aggregate target. 
C)  a constant monetary growth rule. 
D)  an interest rate target. 
A)  an inflation target. 
B)  a monetary aggregate target. 
C)  a constant monetary growth rule. 
D)  an interest rate target.

Question 5

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

Accepted Answer

A)  monetary policy. 
B)  an automatic mechanism. 
C)  "releasing sticky prices." 
D)  fiscal policy. 
A)  monetary policy. 
B)  an automatic mechanism. 
C)  "releasing sticky prices." 
D)  fiscal policy.

Question 6

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

Accepted Answer

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

Question 7

Stagflation occurs when aggregate supply and aggregate demand both increase.

Accepted Answer

A) True 
 B)False

Question 8

The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism 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

When the economy enters a recession, your employer is unlikely to reduce your wages because ________ during a recession.

Accepted Answer

A)  output and input prices generally fall 
B)  lower wages reduce productivity and morale 
C)  output prices always fall 
D)  output prices generally fall and input prices generally rise 
A)  output and input prices generally fall 
B)  lower wages reduce productivity and morale 
C)  output prices always fall 
D)  output prices generally fall and input prices generally rise

Question 10

Figure 24-3  
-Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.

Accepted Answer

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

Question 11

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

Accepted Answer

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

Question 12

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

Accepted Answer

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

Question 13

A decrease in the price level will

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 14

On the long-run aggregate supply curve,

Accepted Answer

A)  a decrease in the price level decreases the level of potential GDP. 
B)  a decrease in the price level increases the aggregate quantity of GDP supplied. 
C)  a decrease in the price level decreases the aggregate quantity of GDP supplied. 
D)  a decrease in the price level has no effect on the aggregate quantity of GDP supplied. 
A)  a decrease in the price level decreases the level of potential GDP. 
B)  a decrease in the price level increases the aggregate quantity of GDP supplied. 
C)  a decrease in the price level decreases the aggregate quantity of GDP supplied. 
D)  a decrease in the price level has no effect on the aggregate quantity of GDP supplied.

Question 15

Figure 24-3  
-Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria?

Accepted Answer

A)  A and B 
B)  A and C 
C)  A and D 
D)  A, B, C, and D 
A)  A and B 
B)  A and C 
C)  A and D 
D)  A, B, C, and D

Question 16

Just before, during, and after the recession of 2007-2009, net exports in the United States

Accepted Answer

A)  fell and remained negative. 
B)  fell, but remained positive. 
C)  rose and became positive. 
D)  rose, but remained negative. 
A)  fell and remained negative. 
B)  fell, but remained positive. 
C)  rose and became positive. 
D)  rose, but remained negative.

Question 17

An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 18

Forecasts made by White House economists and economists at the Congressional Budget Office in 2011 projected that real GDP

Accepted Answer

A)  would return to potential GDP by the end of 2011. 
B)  would not return to potential GDP until the first quarter of 2013. 
C)  would not return to potential GDP until 2016. 
D)  would never return to potential GDP. 
A)  would return to potential GDP by the end of 2011. 
B)  would not return to potential GDP until the first quarter of 2013. 
C)  would not return to potential GDP until 2016. 
D)  would never return to potential GDP.

Question 19

The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation. What did this technological change do the short-run supply curve?

Accepted Answer

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

Question 20

A decrease in the price level will

Accepted Answer

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

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Explain the three reasons the aggregate demand curve slopes downward.

Stagflation occurs when

The proponents of rational expectations and monetarism think that the Federal Reserve should adopt

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

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

Stagflation occurs when aggregate supply and aggregate demand both increase.

The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

When the economy enters a recession, your employer is unlikely to reduce your wages because ________ during a recession.

Figure 24-3 -Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

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

A decrease in the price level will

On the long-run aggregate supply curve,

Figure 24-3 -Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria?

Just before, during, and after the recession of 2007-2009, net exports in the United States

An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.

Forecasts made by White House economists and economists at the Congressional Budget Office in 2011 projected that real GDP

The invention of the cotton gin ushered in the Industrial Revolution and began a long period of technological innovation. What did this technological change do the short-run supply curve?

A decrease in the price level will

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

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Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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When the price of oil rises unexpectedly, the equilibrium price level and the unemployment rate in the short run.

of unemployment during make it easier for workers to wages.