Question 1

Adjustments in _________ naturally move the economy toward long-run equilibrium.

Accepted Answer

A)  aggregate demand 
B)  the price level 
C)  government spending 
D)  the productive capacity of firms 
E)  full employment output 
A)  aggregate demand 
B)  the price level 
C)  government spending 
D)  the productive capacity of firms 
E)  full employment output

Question 2

__________ would cause a leftward shift of the aggregate demand curve.

Accepted Answer

A)  An increase in real wealth 
B)  An increase in expected income 
C)  A decrease in foreign income 
D)  An increase in the expected price level 
E)  A decrease in the value of the dollar 
A)  An increase in real wealth 
B)  An increase in expected income 
C)  A decrease in foreign income 
D)  An increase in the expected price level 
E)  A decrease in the value of the dollar

Question 3

_________ would decrease short-run aggregate supply.

Accepted Answer

A)  A negative supply shock 
B)  Menu costs 
C)  Money illusion 
D)  A technological advance 
E)  A lower than expected price level 
A)  A negative supply shock 
B)  Menu costs 
C)  Money illusion 
D)  A technological advance 
E)  A lower than expected price level

Question 4

Refer to the following figure to answer the next  questions.  
-Based on the figure, if the economy is initially at point B and new technology leads to an increase in labor productivity, then in the long run we will end up at point __________.

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E.

Question 5

How many recessions have there been in the United States since 1982?

Accepted Answer

A)  none 
B)  one 
C)  two 
D)  three 
E)  four 
A)  none 
B)  one 
C)  two 
D)  three 
E)  four

Question 6

The model used to study business cycles is the:

Accepted Answer

A)  labor model. 
B)  savings model. 
C)  growth model. 
D)  aggregate demand-aggregate supply model. 
E)  interest rate model. 
A)  labor model. 
B)  savings model. 
C)  growth model. 
D)  aggregate demand-aggregate supply model. 
E)  interest rate model.

Question 7

If people expect higher income in the future, then spending today __________ and aggregate demand __________.

Accepted Answer

A)  increases; is unaffected 
B)  increases; increases 
C)  increases; decreases 
D)  decreases; decreases 
E)  is unaffected; is unaffected 
A)  increases; is unaffected 
B)  increases; increases 
C)  increases; decreases 
D)  decreases; decreases 
E)  is unaffected; is unaffected

Question 8

A fall in the price level that causes a change in the real value of wealth results in:

Accepted Answer

A)  a downward movement along the aggregate demand curve. 
B)  an upward movement along the aggregate demand curve. 
C)  a rightward shift of the demand curve. 
D)  a leftward shift of the demand curve. 
E)  no change in the quantity of aggregate demand. 
A)  a downward movement along the aggregate demand curve. 
B)  an upward movement along the aggregate demand curve. 
C)  a rightward shift of the demand curve. 
D)  a leftward shift of the demand curve. 
E)  no change in the quantity of aggregate demand.

Question 9

Starting from long-run equilibrium, draw an aggregate demand-aggregate supply graph to illustrate the difference between a long-run and a short-run equilibrium due to an increase in aggregate demand. Once the economy is in the short-run equilibrium, explain-but it's not necessary to illustrate-how long-run equilibrium will be restored.

Accepted Answer

In long-run equilibrium, the economy is

Question 10

Which of the following would affect both short-run and long-run aggregate supply?

Accepted Answer

A)  a supply shock 
B)  menu costs 
C)  money illusion 
D)  technological change 
E)  a change in the general price level 
A)  a supply shock 
B)  menu costs 
C)  money illusion 
D)  technological change 
E)  a change in the general price level

Question 11

Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
E)  have no effect on; have no effect on 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
E)  have no effect on; have no effect on

Question 12

When foreign income rises, U.S. aggregate:

Accepted Answer

A)  demand will shift to the right. 
B)  supply will shift to the right. 
C)  demand will shift to the left. 
D)  supply will shift to the left. 
E)  demand and aggregate supply will be unaffected. 
A)  demand will shift to the right. 
B)  supply will shift to the right. 
C)  demand will shift to the left. 
D)  supply will shift to the left. 
E)  demand and aggregate supply will be unaffected.

Question 13

When the price level rises, __________ declines from the wealth effect, __________ declines from the interest rate effect, and __________ decline(s) from the international trade effect.

Accepted Answer

A)  consumption; investment; net exports 
B)  consumption; consumption; consumption 
C)  investment; investment; net exports 
D)  investment; consumption; net exports 
E)  investment; investment; investment 
A)  consumption; investment; net exports 
B)  consumption; consumption; consumption 
C)  investment; investment; net exports 
D)  investment; consumption; net exports 
E)  investment; investment; investment

Question 14

If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:

Accepted Answer

A)  remain unchanged. 
B)  shift to the right to reflect an increase in output of 5%. 
C)  shift to the right to reflect an increase in output of more than 5%. 
D)  shift to the left to reflect a decrease in output of 5%. 
E)  shift to the left to reflect a decrease in output of more than 5%. 
A)  remain unchanged. 
B)  shift to the right to reflect an increase in output of 5%. 
C)  shift to the right to reflect an increase in output of more than 5%. 
D)  shift to the left to reflect a decrease in output of 5%. 
E)  shift to the left to reflect a decrease in output of more than 5%.

Question 15

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:

Accepted Answer

A)  a rightward shift of the aggregate demand curve. 
B)  a leftward shift of the aggregate demand curve. 
C)  an upward movement along the aggregate demand curve. 
D)  a downward movement along the aggregate demand curve. 
E)  a downward movement along the aggregate supply curve. 
A)  a rightward shift of the aggregate demand curve. 
B)  a leftward shift of the aggregate demand curve. 
C)  an upward movement along the aggregate demand curve. 
D)  a downward movement along the aggregate demand curve. 
E)  a downward movement along the aggregate supply curve.

Question 16

Aggregate demand is determined by adding up the spending of:

Accepted Answer

A)  domestic consumers who buy goods and services produced in the United States. 
B)  domestic consumers and firms that buy goods and services produced in the United States. 
C)  domestic and foreign consumers who buy goods and services produced in the United States. 
D)  domestic and foreign consumers and firms that buy goods and services produced in the United States. 
E)  consumers, firms, the government, and foreigners that buy goods and services produced in the United States. 
A)  domestic consumers who buy goods and services produced in the United States. 
B)  domestic consumers and firms that buy goods and services produced in the United States. 
C)  domestic and foreign consumers who buy goods and services produced in the United States. 
D)  domestic and foreign consumers and firms that buy goods and services produced in the United States. 
E)  consumers, firms, the government, and foreigners that buy goods and services produced in the United States.

Question 17

The aggregate demand curve is best represented by which of the following equations?

Accepted Answer

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

Question 18

Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________.

Accepted Answer

A)  be unaffected; be unaffected 
B)  decrease; decrease 
C)  decrease; be unaffected 
D)  decrease; increase 
E)  increase; increase 
A)  be unaffected; be unaffected 
B)  decrease; decrease 
C)  decrease; be unaffected 
D)  decrease; increase 
E)  increase; increase

Question 19

How does the interest rate effect explain the slope of the aggregate demand curve?

Accepted Answer

A rise in the price level will reduce sa

Question 20

Refer to the following figure to answer the next  questions.  
-Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS1 to SRAS2?

Accepted Answer

A)  Congress votes to increase the minimum wage. 
B)  There is an increase in spending and firms respond by producing more output. 
C)  Wages and input prices fall as the economy recovers from a recession. 
D)  A severe drought reduces farm production. 
E)  A temporary rise in the price of oil results in higher gasoline prices. 
A)  Congress votes to increase the minimum wage. 
B)  There is an increase in spending and firms respond by producing more output. 
C)  Wages and input prices fall as the economy recovers from a recession. 
D)  A severe drought reduces farm production. 
E)  A temporary rise in the price of oil results in higher gasoline prices.

Adjustments in _________ naturally move the economy toward long-run equilibrium.

__________ would cause a leftward shift of the aggregate demand curve.

_________ would decrease short-run aggregate supply.

Refer to the following figure to answer the next questions. -Based on the figure, if the economy is initially at point B and new technology leads to an increase in labor productivity, then in the long run we will end up at point __________.

How many recessions have there been in the United States since 1982?

The model used to study business cycles is the:

If people expect higher income in the future, then spending today and aggregate demand .

A fall in the price level that causes a change in the real value of wealth results in:

Which of the following would affect both short-run and long-run aggregate supply?

Perfect summer weather increases farm output by 30%. In the short run, this can be expected to the price level and real wealth.

When foreign income rises, U.S. aggregate:

When the price level rises, declines from the wealth effect, declines from the interest rate effect, and __ decline(s) from the international trade effect.

If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:

Aggregate demand is determined by adding up the spending of:

The aggregate demand curve is best represented by which of the following equations?

Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to and output in the long run to .

How does the interest rate effect explain the slope of the aggregate demand curve?

Refer to the following figure to answer the next questions. -Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS₁ to SRAS₂?

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Exam 13: The Aggregate Demandaggregate Supply Model

Adjustments in _________ naturally move the economy toward long-run equilibrium.

__________ would cause a leftward shift of the aggregate demand curve.

_________ would decrease short-run aggregate supply.

Refer to the following figure to answer the next questions. -Based on the figure, if the economy is initially at point B and new technology leads to an increase in labor productivity, then in the long run we will end up at point __________.

How many recessions have there been in the United States since 1982?

The model used to study business cycles is the:

If people expect higher income in the future, then spending today __________ and aggregate demand __________.

A fall in the price level that causes a change in the real value of wealth results in:

Which of the following would affect both short-run and long-run aggregate supply?

Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.

When foreign income rises, U.S. aggregate:

When the price level rises, __________ declines from the wealth effect, __________ declines from the interest rate effect, and __________ decline(s) from the international trade effect.

If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:

When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:

Aggregate demand is determined by adding up the spending of:

The aggregate demand curve is best represented by which of the following equations?

Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________.

How does the interest rate effect explain the slope of the aggregate demand curve?

Refer to the following figure to answer the next questions. -Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS1 to SRAS2?

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

If people expect higher income in the future, then spending today and aggregate demand .

Perfect summer weather increases farm output by 30%. In the short run, this can be expected to the price level and real wealth.

When the price level rises, declines from the wealth effect, declines from the interest rate effect, and __ decline(s) from the international trade effect.

Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to and output in the long run to .

Refer to the following figure to answer the next questions. -Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS₁ to SRAS₂?