Question 1

In order to understand how the economy works in the short run, we need to

Accepted Answer

A)  study the classical model. 
B)  study a model in which real and nominal variables interact. 
C)  understand that "money is a veil." 
D)  understand that money is neutral in the short run. 
A)  study the classical model. 
B)  study a model in which real and nominal variables interact. 
C)  understand that "money is a veil." 
D)  understand that money is neutral in the short run.

Question 2

According to classical macroeconomic theory, changes in the money supply affect

Accepted Answer

A)  variables measured in terms of money and variables measured in terms of quantities or relative prices 
B)  variables measured in terms of money but not variables measured in terms of quantities or relative prices 
C)  variables measured in terms of quantities or relative prices, but not variables measured in terms of money 
D)  neither variables measured in terms of money nor variables measured in terms of quantities or relative prices 
A)  variables measured in terms of money and variables measured in terms of quantities or relative prices 
B)  variables measured in terms of money but not variables measured in terms of quantities or relative prices 
C)  variables measured in terms of quantities or relative prices, but not variables measured in terms of money 
D)  neither variables measured in terms of money nor variables measured in terms of quantities or relative prices

Question 3

Suppose a country offers a new investment tax credit. Which curves) in the aggregate demand and aggregate supply model would be affected, and which way would it they) shift?

Accepted Answer

The aggregate-demand

Question 4

When the price level falls

Accepted Answer

A)  people want to hold less money. 
B)  the interest rate falls. 
C)  investment spending rises. 
D)  All of the above are correct. 
A)  people want to hold less money. 
B)  the interest rate falls. 
C)  investment spending rises. 
D)  All of the above are correct.

Question 5

Most economists believe that classical theory describes the world

Accepted Answer

A)  in the short run. 
B)  in the long run. 
C)  in both the short run and the long run. 
D)  in neither the short run nor the long run. 
A)  in the short run. 
B)  in the long run. 
C)  in both the short run and the long run. 
D)  in neither the short run nor the long run.

Question 6

The aggregate demand and aggregate supply graph has

Accepted Answer

A)  quantity of output on the horizontal axis. Output can be measured by the GDP deflator. 
B)  quantity of output on the horizontal axis. Output can be measured by real GDP. 
C)  quantity of output on the vertical axis. Output can be measured by the GDP deflator. 
D)  quantity of output on the vertical axis. Output can be measured by real GDP. 
A)  quantity of output on the horizontal axis. Output can be measured by the GDP deflator. 
B)  quantity of output on the horizontal axis. Output can be measured by real GDP. 
C)  quantity of output on the vertical axis. Output can be measured by the GDP deflator. 
D)  quantity of output on the vertical axis. Output can be measured by real GDP.

Question 7

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Accepted Answer

A)  increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve. 
B)  decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve. 
C)  increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. 
D)  decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve. 
A)  increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve. 
B)  decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve. 
C)  increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. 
D)  decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.

Question 8

If aggregate demand shifts right then in the short run

Accepted Answer

A)  firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. 
B)  firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. 
C)  firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. 
D)  firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. 
A)  firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. 
B)  firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. 
C)  firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. 
D)  firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

Question 9

Other things the same, as the price level rises, the real value of a dollar

Accepted Answer

A)  rises, and interest rates rise. 
B)  rises, and interest rates fall. 
C)  falls, and interest rates rise. 
D)  falls, and interest rates fall. 
A)  rises, and interest rates rise. 
B)  rises, and interest rates fall. 
C)  falls, and interest rates rise. 
D)  falls, and interest rates fall.

Question 10

Other things the same, a fall in an economy's overall level of prices tends to

Accepted Answer

A)  raise both the quantity demanded and supplied of goods and services. 
B)  raise the quantity demanded of goods and services, but lower the quantity supplied. 
C)  lower the quantity demanded of goods and services, but raise the quantity supplied. 
D)  lower both the quantity demanded and the quantity supplied of goods and services. 
A)  raise both the quantity demanded and supplied of goods and services. 
B)  raise the quantity demanded of goods and services, but lower the quantity supplied. 
C)  lower the quantity demanded of goods and services, but raise the quantity supplied. 
D)  lower both the quantity demanded and the quantity supplied of goods and services.

Question 11

Other things the same, as the price level falls, a country's exchange rate

Accepted Answer

A)  and interest rates rise. 
B)  and interest rates fall. 
C)  falls and interest rates rise. 
D)  rises and interest rates fall. 
A)  and interest rates rise. 
B)  and interest rates fall. 
C)  falls and interest rates rise. 
D)  rises and interest rates fall.

Question 12

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Accepted Answer

A) True 
 B)False

Question 13

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

Accepted Answer

A) True 
 B)False

Question 14

Figure 33-7.  
-Refer to Pessimism. How is the new long-run equilibrium different from the original one?

Accepted Answer

A)  both price and real GDP are higher. 
B)  both price and real GDP are lower. 
C)  the price level is the same and GDP is lower. 
D)  the price level is lower and real GDP is the same. 
A)  both price and real GDP are higher. 
B)  both price and real GDP are lower. 
C)  the price level is the same and GDP is lower. 
D)  the price level is lower and real GDP is the same.

Question 15

"Money is a veil" best describes the

Accepted Answer

A)  new-Keynesian view. 
B)  Keynesian view. 
C)  classical view. 
D)  economy in the short run but not the long run. 
A)  new-Keynesian view. 
B)  Keynesian view. 
C)  classical view. 
D)  economy in the short run but not the long run.

Question 16

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Accepted Answer

A)  the wealth effect and the interest-rate effect 
B)  the wealth effect but not the interest-rate effect 
C)  the interest-rate effect but not the wealth effect 
D)  neither the wealth-effect nor the interest rate effect 
A)  the wealth effect and the interest-rate effect 
B)  the wealth effect but not the interest-rate effect 
C)  the interest-rate effect but not the wealth effect 
D)  neither the wealth-effect nor the interest rate effect

Question 18

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

Accepted Answer

A)  aggregate demand right. 
B)  aggregate demand left. 
C)  aggregate supply right. 
D)  aggregate supply left. 
A)  aggregate demand right. 
B)  aggregate demand left. 
C)  aggregate supply right. 
D)  aggregate supply left.

Question 19

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds,

Accepted Answer

A)  the dollar would appreciate which would cause aggregate demand to shift right. 
B)  the dollar would appreciate which would cause aggregate demand to shift left. 
C)  the dollar would depreciate which would cause aggregate demand to shift right. 
D)  the dollar would depreciate which would cause aggregate demand to shift left. 
A)  the dollar would appreciate which would cause aggregate demand to shift right. 
B)  the dollar would appreciate which would cause aggregate demand to shift left. 
C)  the dollar would depreciate which would cause aggregate demand to shift right. 
D)  the dollar would depreciate which would cause aggregate demand to shift left.

Question 20

Which of the following typically rises during a recession?

Accepted Answer

A)  investment. 
B)  unemployment. 
C)  tax revenues. 
D)  new home construction. 
A)  investment. 
B)  unemployment. 
C)  tax revenues. 
D)  new home construction.

Exam 20: Aggregate Demand and Aggregate Supply

In order to understand how the economy works in the short run, we need to

According to classical macroeconomic theory, changes in the money supply affect

Suppose a country offers a new investment tax credit. Which curves) in the aggregate demand and aggregate supply model would be affected, and which way would it they) shift?

When the price level falls

Most economists believe that classical theory describes the world

The aggregate demand and aggregate supply graph has

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

If aggregate demand shifts right then in the short run

Other things the same, as the price level rises, the real value of a dollar

Other things the same, a fall in an economy's overall level of prices tends to

Other things the same, as the price level falls, a country's exchange rate

In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

Figure 33-7. -Refer to Pessimism. How is the new long-run equilibrium different from the original one?

"Money is a veil" best describes the

According to classical macroeconomic theory, changes in the money supply change nominal but not real variables.

Which of the following effects provide incentives for consumers to spend less when the price level rises?

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds,

Which of the following typically rises during a recession?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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