Question 1

The economy is in a recession.The desired FISCAL policy is a(n):

Accepted Answer

A)  decrease in government transfer payments. 
B)  increase in government purchases of goods and services. 
C)  increase in tax rates. 
D)  decrease in interest rates. 
A)  decrease in government transfer payments. 
B)  increase in government purchases of goods and services. 
C)  increase in tax rates. 
D)  decrease in interest rates.

Question 2

An economy is operating at an output level below potential real GDP.If the government wishes to use fiscal policy to bring the economy back to its potential real GDP,it will:

Accepted Answer

A)  increase the money supply. 
B)  increase its spending. 
C)  increase taxation. 
D)  decrease the money supply. 
A)  increase the money supply. 
B)  increase its spending. 
C)  increase taxation. 
D)  decrease the money supply.

Question 3

When the price level decreases,firms in perfectly competitive markets will:

Accepted Answer

A)  decrease output and increase the price. 
B)  decrease output. 
C)  increase output and decrease the price. 
D)  increase output. 
A)  decrease output and increase the price. 
B)  decrease output. 
C)  increase output and decrease the price. 
D)  increase output.

Question 4

Suppose that the aggregate output level is lower than potential output.Which statement is FALSE?

Accepted Answer

A)  Workers are abundant. 
B)  Jobs are scarce. 
C)  Nominal wages will fall over time. 
D)  The short-run aggregate supply curve will gradually shift to the left. 
A)  Workers are abundant. 
B)  Jobs are scarce. 
C)  Nominal wages will fall over time. 
D)  The short-run aggregate supply curve will gradually shift to the left.

Question 5

The only government policy that has a DIRECT effect on the aggregate demand curve is:

Accepted Answer

A)  changing the quantity of money. 
B)  raising or lowering the tax rate. 
C)  changing the level of government purchases of final goods and services. 
D)  changing the level of government transfers. 
A)  changing the quantity of money. 
B)  raising or lowering the tax rate. 
C)  changing the level of government purchases of final goods and services. 
D)  changing the level of government transfers.

Question 6

In 2011,the Bank of Canada was facing:

Accepted Answer

A)  hyperinflation,which can be reversed only with disinflationary policies. 
B)  stagflation,a combination of high inflation and high unemployment,which cannot be reversed easily. 
C)  the deepest recession since the Great Depression combined with rapidly falling prices. 
D)  a very severe deflation,rare in history,which was experienced only by Japan. 
A)  hyperinflation,which can be reversed only with disinflationary policies. 
B)  stagflation,a combination of high inflation and high unemployment,which cannot be reversed easily. 
C)  the deepest recession since the Great Depression combined with rapidly falling prices. 
D)  a very severe deflation,rare in history,which was experienced only by Japan.

Question 7

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

Accepted Answer

A)  demand;aggregate demand;right 
B)  supply;aggregate demand;left 
C)  supply;short-run aggregate supply;left 
D)  demand;long-run aggregate supply;left 
A)  demand;aggregate demand;right 
B)  supply;aggregate demand;left 
C)  supply;short-run aggregate supply;left 
D)  demand;long-run aggregate supply;left

Question 8

Use the following to answer questions:  
-(Figure: Policy Alternatives)Refer to Figure: Policy Alternatives.If the economy is in equilibrium at Y1 in panel (a)and government spending increases,the result will likely be:

Accepted Answer

A)  an increase in unemployment. 
B)  a decrease in interest rates. 
C)  inflation. 
D)  deflation. 
A)  an increase in unemployment. 
B)  a decrease in interest rates. 
C)  inflation. 
D)  deflation.

Question 9

Use the following to answer questions:  
-(Figure: An Increase in Aggregate Demand)Refer to Figure: An Increase in Aggregate Demand.Assume that the economy is initially in long-run equilibrium at YP and P1.Now suppose that there is an increase in the level of government purchases at each price level.This will:

Accepted Answer

A)  shift the aggregate demand curve from AD2 to AD1. 
B)  shift the aggregate demand curve from AD1 to AD2. 
C)  lead to increased output and a decrease in the price level. 
D)  lead to decreased output and a decreased price level. 
A)  shift the aggregate demand curve from AD2 to AD1. 
B)  shift the aggregate demand curve from AD1 to AD2. 
C)  lead to increased output and a decrease in the price level. 
D)  lead to decreased output and a decreased price level.

Question 10

According to the short-run aggregate supply curve,when the _____ rises,the quantity of aggregate output _____ rises.

Accepted Answer

A)  profit per unit;demanded 
B)  aggregate price level;supplied 
C)  aggregate price level;demanded 
D)  interest rate;supplied 
A)  profit per unit;demanded 
B)  aggregate price level;supplied 
C)  aggregate price level;demanded 
D)  interest rate;supplied

Question 11

A movement along the short-run AS curve occurs,holding everything else constant,when there is a:

Accepted Answer

A)  change in commodity prices. 
B)  supply shock. 
C)  change in the aggregate price level. 
D)  productivity change. 
A)  change in commodity prices. 
B)  supply shock. 
C)  change in the aggregate price level. 
D)  productivity change.

Question 12

Stabilization policies have:

Accepted Answer

A)  not reduced the effects of business cycles caused by either demand shocks or supply shocks. 
B)  reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks. 
C)  reduced the economic costs of supply shocks but have not been so successful against demand shocks. 
D)  reduced economic fluctuations by neutralizing the effects of both supply and demand shocks. 
A)  not reduced the effects of business cycles caused by either demand shocks or supply shocks. 
B)  reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks. 
C)  reduced the economic costs of supply shocks but have not been so successful against demand shocks. 
D)  reduced economic fluctuations by neutralizing the effects of both supply and demand shocks.

Question 13

In the long run,nominal wages are:

Accepted Answer

A)  sticky downward but flexible upward. 
B)  sticky upward but flexible downward. 
C)  sticky both upward and downward. 
D)  flexible,because contracts and informal agreements are renegotiated in the long run. 
A)  sticky downward but flexible upward. 
B)  sticky upward but flexible downward. 
C)  sticky both upward and downward. 
D)  flexible,because contracts and informal agreements are renegotiated in the long run.

Question 14

A general decrease in wages will result primarily in the _____ curve shifting to the _____.

Accepted Answer

A)  aggregate demand;right 
B)  aggregate demand;left 
C)  short-run aggregate supply;right 
D)  short-run aggregate supply;left 
A)  aggregate demand;right 
B)  aggregate demand;left 
C)  short-run aggregate supply;right 
D)  short-run aggregate supply;left

Question 15

Potential real GDP is $10 000 and the current level of real GDP is $9 000.The output gap is therefore _____%.

Accepted Answer

A)  -90 
B)  -110 
C)  -10 
D)  10 
A)  -90 
B)  -110 
C)  -10 
D)  10

Question 16

Use the following to answer questions:  
-A positive demand shock will result from:

Accepted Answer

A)  a sudden increase in nominal wages. 
B)  an increase in the potential GDP. 
C)  a move by the Bank of Canada to lower the interest rate. 
D)  consumers and firms becoming more pessimistic. 
A)  a sudden increase in nominal wages. 
B)  an increase in the potential GDP. 
C)  a move by the Bank of Canada to lower the interest rate. 
D)  consumers and firms becoming more pessimistic.

Question 17

In the short run,a positive demand shock _____ aggregate output and _____ the aggregate price level.

Accepted Answer

A)  reduces;increases 
B)  increases;reduces 
C)  reduces;reduces 
D)  increases;increases 
A)  reduces;increases 
B)  increases;reduces 
C)  reduces;reduces 
D)  increases;increases

Question 18

Use the following to answer questions:  
-(Figure: AD-AS Model I)Refer to Figure: AD-AS Model I.If the economy is at point X,nominal wages _____,and the _____ curve shifts _____ until the economy reaches long-run equilibrium.

Accepted Answer

A)  fall;aggregate demand;left 
B)  rise;aggregate demand;right 
C)  fall;short-run aggregate supply;right 
D)  fall;short-run aggregate supply;left 
A)  fall;aggregate demand;left 
B)  rise;aggregate demand;right 
C)  fall;short-run aggregate supply;right 
D)  fall;short-run aggregate supply;left

Question 19

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

Accepted Answer

A)  higher;lower output as costs of production increase 
B)  higher;higher output,since most production costs are fixed in the short run 
C)  lower;higher output,since production costs tend to fall in the short run 
D)  lower;higher profit and higher productivity 
A)  higher;lower output as costs of production increase 
B)  higher;higher output,since most production costs are fixed in the short run 
C)  lower;higher output,since production costs tend to fall in the short run 
D)  lower;higher profit and higher productivity

Question 20

If the SRAS curve intersects the aggregate demand curve to the right of LRAS,the result will be:

Accepted Answer

A)  a recessionary gap. 
B)  an inflationary gap. 
C)  cyclical unemployment. 
D)  long-run equilibrium. 
A)  a recessionary gap. 
B)  an inflationary gap. 
C)  cyclical unemployment. 
D)  long-run equilibrium.

The economy is in a recession.The desired FISCAL policy is a(n):

An economy is operating at an output level below potential real GDP.If the government wishes to use fiscal policy to bring the economy back to its potential real GDP,it will:

When the price level decreases,firms in perfectly competitive markets will:

Suppose that the aggregate output level is lower than potential output.Which statement is FALSE?

The only government policy that has a DIRECT effect on the aggregate demand curve is:

In 2011,the Bank of Canada was facing:

A natural disaster that destroys part of a country's infrastructure is a type of negative ___ shock and therefore shifts the _ curve to the ___.

Use the following to answer questions: -(Figure: Policy Alternatives)Refer to Figure: Policy Alternatives.If the economy is in equilibrium at Y₁ in panel (a)and government spending increases,the result will likely be:

According to the short-run aggregate supply curve,when the _ rises,the quantity of aggregate output _ rises.

A movement along the short-run AS curve occurs,holding everything else constant,when there is a:

Stabilization policies have:

In the long run,nominal wages are:

A general decrease in wages will result primarily in the _ curve shifting to the _.

Potential real GDP is $10 000 and the current level of real GDP is $9 000.The output gap is therefore _____%.

Use the following to answer questions: -A positive demand shock will result from:

In the short run,a positive demand shock _ aggregate output and _ the aggregate price level.

Use the following to answer questions: -(Figure: AD-AS Model I)Refer to Figure: AD-AS Model I.If the economy is at point X,nominal wages ___,and the _ curve shifts ___ until the economy reaches long-run equilibrium.

The short-run aggregate supply curve slopes upward because a _ aggregate price level leads to _.

If the SRAS curve intersects the aggregate demand curve to the right of LRAS,the result will be:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

Gdp and the Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Graphs in Economics

Filters

Exam 12: Aggregate Demand and Aggregate Supply

The economy is in a recession.The desired FISCAL policy is a(n):

An economy is operating at an output level below potential real GDP.If the government wishes to use fiscal policy to bring the economy back to its potential real GDP,it will:

When the price level decreases,firms in perfectly competitive markets will:

Suppose that the aggregate output level is lower than potential output.Which statement is FALSE?

The only government policy that has a DIRECT effect on the aggregate demand curve is:

In 2011,the Bank of Canada was facing:

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

Use the following to answer questions: -(Figure: Policy Alternatives)Refer to Figure: Policy Alternatives.If the economy is in equilibrium at Y1 in panel (a)and government spending increases,the result will likely be:

According to the short-run aggregate supply curve,when the _____ rises,the quantity of aggregate output _____ rises.

A movement along the short-run AS curve occurs,holding everything else constant,when there is a:

Stabilization policies have:

In the long run,nominal wages are:

A general decrease in wages will result primarily in the _____ curve shifting to the _____.

Potential real GDP is $10 000 and the current level of real GDP is $9 000.The output gap is therefore _____%.

Use the following to answer questions: -A positive demand shock will result from:

In the short run,a positive demand shock _____ aggregate output and _____ the aggregate price level.

Use the following to answer questions: -(Figure: AD-AS Model I)Refer to Figure: AD-AS Model I.If the economy is at point X,nominal wages _____,and the _____ curve shifts _____ until the economy reaches long-run equilibrium.

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

If the SRAS curve intersects the aggregate demand curve to the right of LRAS,the result will be:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

Gdp and the Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Income and Expenditure

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Graphs in Economics

Filters

A natural disaster that destroys part of a country's infrastructure is a type of negative ___ shock and therefore shifts the _ curve to the ___.

Use the following to answer questions: -(Figure: Policy Alternatives)Refer to Figure: Policy Alternatives.If the economy is in equilibrium at Y₁ in panel (a)and government spending increases,the result will likely be:

According to the short-run aggregate supply curve,when the _ rises,the quantity of aggregate output _ rises.

A general decrease in wages will result primarily in the _ curve shifting to the _.

In the short run,a positive demand shock _ aggregate output and _ the aggregate price level.

Use the following to answer questions: -(Figure: AD-AS Model I)Refer to Figure: AD-AS Model I.If the economy is at point X,nominal wages ___,and the _ curve shifts ___ until the economy reaches long-run equilibrium.

The short-run aggregate supply curve slopes upward because a _ aggregate price level leads to _.