Question 1

Figure 24-4  
-Refer to Figure 24-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

Accepted Answer

A)  0.9% 
B)  1.8% 
C)  2.7% 
D)  3.0% 
A)  0.9% 
B)  1.8% 
C)  2.7% 
D)  3.0%

Question 2

Why does the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?

Accepted Answer

A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices. 
A)  Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. 
B)  Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices. 
C)  Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. 
D)  Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.

Question 3

Forecasts made by White House economists and economists at the Congressional Budget Office in 2011 project 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 4

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 5

What is potential GDP?

Accepted Answer

A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant. 
A)  It is the level of real GDP in the long run. 
B)  It is the difference between current GDP and maximum GDP. 
C)  It is the level of real GDP in the short run. 
D)  It is the level of GDP at which inflation is constant.

Question 6

If full-employment GDP is equal to $4.2 trillion,what does the long-run aggregate supply curve look like?

Accepted Answer

A)  It is a horizontal line at $4.2 trillion of GDP. 
B)  It is a vertical line at a level of GDP below $4.2 trillion. 
C)  It is a vertical line at $4.2 trillion of GDP. 
D)  It is a vertical line at a level of GDP above $4.2 trillion. 
A)  It is a horizontal line at $4.2 trillion of GDP. 
B)  It is a vertical line at a level of GDP below $4.2 trillion. 
C)  It is a vertical line at $4.2 trillion of GDP. 
D)  It is a vertical line at a level of GDP above $4.2 trillion.

Question 7

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

Accepted Answer

A)  Output will decline. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  The aggregate demand curve will shift to the left. 
A)  Output will decline. 
B)  Prices will decline. 
C)  Unemployment will decline. 
D)  The aggregate demand curve will shift to the left.

Question 8

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 9

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 10

Figure 24-3  
-Refer to Figure 24-3.Suppose the economy is at point C.If government 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 11

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,sales

Question 12

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 13

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 14

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 15

Which of the following models relies on emphasizing the importance of sticky wages and prices?

Accepted Answer

A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model 
A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model

Question 16

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 17

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Accepted Answer

We can make the aggregate demand and agg

Question 18

The international trade effect states that

Accepted Answer

A)  an increase in the price level will raise net exports. 
B)  an increase in the price level will lower net exports. 
C)  an increase in the price level will raise exports. 
D)  an increase in the price level will lower imports. 
A)  an increase in the price level will raise net exports. 
B)  an increase in the price level will lower net exports. 
C)  an increase in the price level will raise exports. 
D)  an increase in the price level will lower imports.

Question 19

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except

Accepted Answer

A)  unions are successful in pushing up wages. 
B)  firms are often slow to adjust wages. 
C)  contracts make prices and wages "sticky." 
D)  menu costs make some prices sticky. 
A)  unions are successful in pushing up wages. 
B)  firms are often slow to adjust wages. 
C)  contracts make prices and wages "sticky." 
D)  menu costs make some prices sticky.

Question 20

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

Accepted Answer

A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  SRAS and AD do not shift. 
A)  SRAS shifted to the right by more than LRAS. 
B)  AD shifted to the right by more than SRAS. 
C)  AD shifted to the right by less than SRAS. 
D)  SRAS and AD do not shift.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Figure 24-4 -Refer to Figure 24-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

Why does the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?

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

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

What is potential GDP?

If full-employment GDP is equal to $4.2 trillion,what does the long-run aggregate supply curve look like?

Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment.Which of the following will happen in the short run?

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

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?

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

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.

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.

In the long run,

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.

Which of the following models relies on emphasizing the importance of sticky wages and prices?

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

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

The international trade effect states that

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

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

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

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?

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.