Question 1

The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

Accepted Answer

A) True 
 B)False

Question 2

When the general price level rises,

Accepted Answer

A)  consumption falls as a result of the real wealth effect. 
B)  consumption increases as a result of the multiplier effect. 
C)  investment rises as a result of the real wealth effect. 
D)  investment rises as a result of the multiplier effect. 
A)  consumption falls as a result of the real wealth effect. 
B)  consumption increases as a result of the multiplier effect. 
C)  investment rises as a result of the real wealth effect. 
D)  investment rises as a result of the multiplier effect.

Question 3

To increase output the government could

Accepted Answer

A)  adopt policies that discourage immigration and increase government spending. 
B)  adopt policies that encourage immigration and decrease government spending. 
C)  adopt policies that encourage technological advancement and increase government spending. 
D)  adopt policies that discourage technological advancement and decrease government spending. 
A)  adopt policies that discourage immigration and increase government spending. 
B)  adopt policies that encourage immigration and decrease government spending. 
C)  adopt policies that encourage technological advancement and increase government spending. 
D)  adopt policies that discourage technological advancement and decrease government spending.

Question 4

An oil price increase would

Accepted Answer

A)  increase aggregate demand. 
B)  decrease short-run aggregate supply. 
C)  decrease aggregate demand. 
D)  increase short-run aggregate supply. 
A)  increase aggregate demand. 
B)  decrease short-run aggregate supply. 
C)  decrease aggregate demand. 
D)  increase short-run aggregate supply.

Question 5

Refer to the information provided in Figure 11.8 below to answer the questions that follow.   Figure 11.8
-Refer to Figure 11.8. If the economy is at point A currently producing Y0 and the Z factors increase, the economy will move to Point ________ in the short run and to Point ________ in the long run.

Accepted Answer

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

Question 6

An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

Accepted Answer

A)  a large increase in both output and the overall price level. 
B)  an increase in the overall price level but little or no increase in output. 
C)  an increase in output but little or no increase in the overall price level. 
D)  little or no increase in either output or the overall price level. 
A)  a large increase in both output and the overall price level. 
B)  an increase in the overall price level but little or no increase in output. 
C)  an increase in output but little or no increase in the overall price level. 
D)  little or no increase in either output or the overall price level.

Question 7

The level of output determined by the intersection of the short-run aggregate supply curve and the aggregate demand curve

Accepted Answer

A)  is always below full-employment output. 
B)  is always above full-employment output. 
C)  always corresponds to full-employment output. 
D)  may be above, below, or equal to full-employment output. 
A)  is always below full-employment output. 
B)  is always above full-employment output. 
C)  always corresponds to full-employment output. 
D)  may be above, below, or equal to full-employment output.

Question 8

Potential output is the same as long-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 9

If the economy produces full employment output, an increase in government spending increases output but not the price level.

Accepted Answer

A) True 
 B)False

Question 10

If input prices changed at exactly the same rate as output prices, the aggregate supply curve would be

Accepted Answer

A)  vertical. 
B)  upward sloping. 
C)  horizontal. 
D)  downward sloping. 
A)  vertical. 
B)  upward sloping. 
C)  horizontal. 
D)  downward sloping.

Question 11

An increase in government purchases shifts the ________ curve to the ________.

Accepted Answer

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

Question 12

Which of the following sequence of events follows an open market sale by the Fed?

Accepted Answer

A)  r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓ 
B)  r↑ ⇒ I↑ ⇒ AE↓ ⇒ Y↑ 
C)  r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑ 
D)  r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↓ 
A)  r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓ 
B)  r↑ ⇒ I↑ ⇒ AE↓ ⇒ Y↑ 
C)  r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑ 
D)  r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↓

Question 13

Refer to the information provided in Figure 11.3 below to answer the questions that follow.   Figure 11.3
-Refer to Figure 11.3. A shift from AS1 to AS2 represents a(n)

Accepted Answer

A)  increase in aggregate supply. 
B)  decrease in aggregate supply. 
C)  increase in aggregate quantity supplied. 
D)  decrease in aggregate quantity supplied. 
A)  increase in aggregate supply. 
B)  decrease in aggregate supply. 
C)  increase in aggregate quantity supplied. 
D)  decrease in aggregate quantity supplied.

Question 14

Any point on the IS curve is an equilibrium in the goods market for the given interest rate.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the information provided in Figure 11.5 below to answer the questions that follow.   Figure 11.5
-Refer to Figure 11.5. As a result of an increase in government spending, the equilibrium interest rate ________ and the equilibrium output level ________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 16

Natural gas is used as a source of energy in many manufacturing processes. Assume large new deposits of natural gas are discovered in Nebraska, which increase the supply of natural gas and decreased the price of natural gas. This would cause

Accepted Answer

A)  the short-run aggregate supply curve to shift to the right. 
B)  the short-run aggregate supply curve to become flatter. 
C)  the short-run aggregate supply curve to shift to the left. 
D)  the short-run aggregate supply curve to become nearly vertical at all levels of output. 
A)  the short-run aggregate supply curve to shift to the right. 
B)  the short-run aggregate supply curve to become flatter. 
C)  the short-run aggregate supply curve to shift to the left. 
D)  the short-run aggregate supply curve to become nearly vertical at all levels of output.

Question 17

The aggregate demand curve shows that, ceteris paribus,

Accepted Answer

A)  at higher price levels, total quantity of output demanded is higher. 
B)  at lower price levels, total quantity of output supplied is lower. 
C)  at lower price levels, total quantity of output demanded is higher. 
D)  at higher price levels, total quantity of output supplied is lower. 
A)  at higher price levels, total quantity of output demanded is higher. 
B)  at lower price levels, total quantity of output supplied is lower. 
C)  at lower price levels, total quantity of output demanded is higher. 
D)  at higher price levels, total quantity of output supplied is lower.

Question 18

Refer to the information provided in Figure 11.8 below to answer the questions that follow.   Figure 11.8
-Refer to Figure 11.8. For this economy to produce at Point B and sustain it without inflation,

Accepted Answer

A)  the price of oil must increase. 
B)  government spending must increase. 
C)  government spending must decrease. 
D)  potential output must increase. 
A)  the price of oil must increase. 
B)  government spending must increase. 
C)  government spending must decrease. 
D)  potential output must increase.

Question 19

A decrease in government purchases shifts the ________ curve to the ________.

Accepted Answer

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

Question 20

The slope of the IS curve is ________ and the slope of the Fed rule is ________.

Accepted Answer

A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative 
A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative

Exam 11: The Determination of Aggregate Output, the Price Level, and the Interest Rate

The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

When the general price level rises,

To increase output the government could

An oil price increase would

An increase in aggregate demand when the economy is operating at high levels of output is likely to result in

The level of output determined by the intersection of the short-run aggregate supply curve and the aggregate demand curve

Potential output is the same as long-run aggregate supply.

If the economy produces full employment output, an increase in government spending increases output but not the price level.

If input prices changed at exactly the same rate as output prices, the aggregate supply curve would be

An increase in government purchases shifts the ________ curve to the ________.

Which of the following sequence of events follows an open market sale by the Fed?

Refer to the information provided in Figure 11.3 below to answer the questions that follow. Figure 11.3 -Refer to Figure 11.3. A shift from AS1 to AS2 represents a(n)

Any point on the IS curve is an equilibrium in the goods market for the given interest rate.

Refer to the information provided in Figure 11.5 below to answer the questions that follow. Figure 11.5 -Refer to Figure 11.5. As a result of an increase in government spending, the equilibrium interest rate ________ and the equilibrium output level ________.

Natural gas is used as a source of energy in many manufacturing processes. Assume large new deposits of natural gas are discovered in Nebraska, which increase the supply of natural gas and decreased the price of natural gas. This would cause

The aggregate demand curve shows that, ceteris paribus,

Refer to the information provided in Figure 11.8 below to answer the questions that follow. Figure 11.8 -Refer to Figure 11.8. For this economy to produce at Point B and sustain it without inflation,

A decrease in government purchases shifts the ________ curve to the ________.

The slope of the IS curve is ________ and the slope of the Fed rule is ________.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Household and Firm Behavior in the Macroeconomy: a Further Look

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

An increase in government purchases shifts the curve to the .

Refer to the information provided in Figure 11.3 below to answer the questions that follow. Figure 11.3 -Refer to Figure 11.3. A shift from AS₁ to AS₂ represents a(n)

Refer to the information provided in Figure 11.5 below to answer the questions that follow. Figure 11.5 -Refer to Figure 11.5. As a result of an increase in government spending, the equilibrium interest rate and the equilibrium output level .

A decrease in government purchases shifts the curve to the .

The slope of the IS curve is and the slope of the Fed rule is .