Question 1

Monetarism is a school of thought put forth by ________,who argued that the economy would most likely be at potential GDP.

Accepted Answer

A) Karl Marx 
B) Milton Friedman 
C) Finn Kydland and Edward Prescott 
D) Robert Lucas and Thomas Sargent 
A) Karl Marx 
B) Milton Friedman 
C) Finn Kydland and Edward Prescott 
D) Robert Lucas and Thomas Sargent

Question 2

Figure 15-4  
-Refer to Figure 15-4.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 3

How do lower taxes affect aggregate demand?

Accepted Answer

A) They increase disposable income,consumption,and aggregate demand. 
B) They reduce disposable income,consumption,and aggregate demand. 
C) they increase corporate investment and aggregate demand. 
D) They increase aggregate supply and thus increase aggregate demand as well. 
A) They increase disposable income,consumption,and aggregate demand. 
B) They reduce disposable income,consumption,and aggregate demand. 
C) they increase corporate investment and aggregate demand. 
D) They increase aggregate supply and thus increase aggregate demand as well.

Question 4

Figure 15-3  
-Refer to Figure 15-3.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 5

Stagflation occurs when aggregate supply and aggregate demand both increase.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Suppose there has been an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.

Accepted Answer

A) increase;increases further 
B) increase;decrease to its initial value 
C) decrease;decrease further 
D) decrease;increase to its initial level 
A) increase;increases further 
B) increase;decrease to its initial value 
C) decrease;decrease further 
D) decrease;increase to its initial level

Question 8

Figure 15-2  
-Refer to Figure 15-2.Ceteris paribus,an increase in the labor force would be represented by a movement from

Accepted Answer

A) SRAS1 to SRAS2. 
B) SRAS2 to SRAS1. 
C) point A to point B. 
D) point B to point A. 
A) SRAS1 to SRAS2. 
B) SRAS2 to SRAS1. 
C) point A to point B. 
D) point B to point A.

Question 9

Figure 15-1  
-Refer to Figure 15-1.Ceteris paribus,an increase in personal income taxes would be represented by a movement from

Accepted Answer

A) AD1 to AD2. 
B) AD2 to AD1. 
C) point A to point B. 
D) point B to point A. 
A) AD1 to AD2. 
B) AD2 to AD1. 
C) point A to point B. 
D) point B to point A.

Question 10

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A) raises;recession;lowers;expansion 
B) raises;expansion raises;recession 
C) lowers;expansion;lowers;recession 
D) lowers;recession;raises;expansion 
A) raises;recession;lowers;expansion 
B) raises;expansion raises;recession 
C) lowers;expansion;lowers;recession 
D) lowers;recession;raises;expansion

Question 11

Starting from long-run equilibrium,use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth.

Accepted Answer

@#IMG-DLM& Before the decline in demand,the econom

Question 12

Spending on the war in Afghanistan is essentially categorized as government purchases.How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Accepted Answer

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

Question 13

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

Accepted Answer

A) the price level;real GDP 
B) real GDP;real GDP 
C) the price level;the price level 
D) real GDP;the price level 
A) the price level;real GDP 
B) real GDP;real GDP 
C) the price level;the price level 
D) real GDP;the price level

Question 14

Using an aggregate demand graph,illustrate the impact of an increase in the price level on aggregate demand.

Accepted Answer

@#IMG-DLM& This illustrates an increase in the pri

Question 15

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following will shift the aggregate demand curve to the right,ceteris paribus?

Accepted Answer

A) an increase in interest rates 
B) a decrease in disposable income 
C) a decrease in expected profits for firms 
D) an increase in net exports 
A) an increase in interest rates 
B) a decrease in disposable income 
C) a decrease in expected profits for firms 
D) an increase in net exports

Question 17

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 18

If workers and firms have rational expectations,they form their expectations using

Accepted Answer

A) all the information available to them. 
B) only information from the past. 
C) only information provided to them by the government. 
D) only information gathered from random sources. 
A) all the information available to them. 
B) only information from the past. 
C) only information provided to them by the government. 
D) only information gathered from random sources.

Question 19

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

A) Output will decrease. 
B) Prices will increase. 
C) Unemployment will rise. 
D) Short-run aggregate supply will shift to the right. 
A) Output will decrease. 
B) Prices will increase. 
C) Unemployment will rise. 
D) Short-run aggregate supply will shift to the right.

Question 20

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.

Monetarism is a school of thought put forth by ________,who argued that the economy would most likely be at potential GDP.

Figure 15-4 -Refer to Figure 15-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

How do lower taxes affect aggregate demand?

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point C.If government spending decreases in the economy,where will the eventual long-run equilibrium be?

Stagflation occurs when aggregate supply and aggregate demand both increase.

The international trade effect states that

Suppose there has been an increase in investment.As a result,real GDP will in the short run,and in the long run.

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,an increase in the labor force would be represented by a movement from

Figure 15-1 -Refer to Figure 15-1.Ceteris paribus,an increase in personal income taxes would be represented by a movement from

The automatic mechanism the price level in the case of and the price level in the case of .

Starting from long-run equilibrium,use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth.

Spending on the war in Afghanistan is essentially categorized as government purchases.How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

An increase in aggregate demand causes an increase in only in the short run,but causes an increase in in both the short run and the long run.

Using an aggregate demand graph,illustrate the impact of an increase in the price level on aggregate demand.

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.

Which of the following will shift the aggregate demand curve to the right,ceteris paribus?

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

If workers and firms have rational expectations,they form their expectations using

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

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

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 15: Aggregate Demand and Aggregate Supply Analysis

Monetarism is a school of thought put forth by ________,who argued that the economy would most likely be at potential GDP.

Figure 15-4 -Refer to Figure 15-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

How do lower taxes affect aggregate demand?

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point C.If government spending decreases in the economy,where will the eventual long-run equilibrium be?

Stagflation occurs when aggregate supply and aggregate demand both increase.

The international trade effect states that

Suppose there has been an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.

Figure 15-2 -Refer to Figure 15-2.Ceteris paribus,an increase in the labor force would be represented by a movement from

Figure 15-1 -Refer to Figure 15-1.Ceteris paribus,an increase in personal income taxes would be represented by a movement from

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Starting from long-run equilibrium,use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth.

Spending on the war in Afghanistan is essentially categorized as government purchases.How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

Using an aggregate demand graph,illustrate the impact of an increase in the price level on aggregate demand.

The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time.

Which of the following will shift the aggregate demand curve to the right,ceteris paribus?

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

If workers and firms have rational expectations,they form their expectations using

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

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

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Suppose there has been an increase in investment.As a result,real GDP will in the short run,and in the long run.

The automatic mechanism the price level in the case of and the price level in the case of .

An increase in aggregate demand causes an increase in only in the short run,but causes an increase in in both the short run and the long run.