Question 1

How does the aggregate supply curve differ from a supply curve for,say,bananas?

Accepted Answer

The supply curve for bananas indicates the quantities that producers are willing to sell at various prices.The aggregate supply curve indicates the rate of inflation that results from various levels of output,relative to potential output.When output is at potential,the rate of inflation is independent,so the long-run aggregate supply curve is vertical.When output varies from potential output,the tightening or slackening of labor and other input markets causes inflation to rise or fall.The supply curve for bananas reflects costs of production.The aggregate supply curve shows that deviations from potential output cause the cost of production and,thus,the price of output to vary.

Question 2

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is true of the Chinese experience?

Accepted Answer

A) The worldwide decline in demand led to a collapse of Chinese exports. 
B) Instead of relying solely on the economy's self-correcting mechanism,much more aggressive fiscal expansions than those of the U.S.(in addition to a substantial monetary easing)served to shift the AD curve back to general equilibrium relatively quickly. 
C) The Chinese economy was better able than the U.S.economy to weather the financial crisis with output growth starting to grow earlier and more quickly than that of the U.S. 
D) all of the above 
E) none of the above 
A) The worldwide decline in demand led to a collapse of Chinese exports. 
B) Instead of relying solely on the economy's self-correcting mechanism,much more aggressive fiscal expansions than those of the U.S.(in addition to a substantial monetary easing)served to shift the AD curve back to general equilibrium relatively quickly. 
C) The Chinese economy was better able than the U.S.economy to weather the financial crisis with output growth starting to grow earlier and more quickly than that of the U.S. 
D) all of the above 
E) none of the above D

Question 3

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

Accepted Answer

A) causing an upward spike in the real interest rate 
B) reducing autonomous spending by households and businesses 
C) reducing government spending on high-tech equipment 
D) all of the above 
E) none of the above 
A) causing an upward spike in the real interest rate 
B) reducing autonomous spending by households and businesses 
C) reducing government spending on high-tech equipment 
D) all of the above 
E) none of the above B

Question 4

The aggregate demand curve shifts to the right when there is ________.

Accepted Answer

A) a negative price shock 
B) a decrease in the nominal interest rate 
C) a decrease in inflation 
D) all of the above 
E) none of the above 
A) a negative price shock 
B) a decrease in the nominal interest rate 
C) a decrease in inflation 
D) all of the above 
E) none of the above

Question 5

Which of the following is (are)linked to (an)adverse supply shock(s)?

Accepted Answer

A) the Arab-Israeli war of 1973 
B) the Iranian revolution of 1979 
C) the wage renegotiations that followed the termination of U.S.wage and price controls in 1973 
D) all of the above 
E) none of the above 
A) the Arab-Israeli war of 1973 
B) the Iranian revolution of 1979 
C) the wage renegotiations that followed the termination of U.S.wage and price controls in 1973 
D) all of the above 
E) none of the above

Question 6

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,both the inflation and unemployment rates were higher than during most of the 1950s,60s and early 70s.The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control.Which of the following is an appropriate description had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) The AD curve would have likely shifted right due to the Federal Reserve lowering of interest rates which might have resulted in a temporary decline in the unemployment rate but at the cost of skyrocketing inflation. 
B) Due to the autonomous expansion of monetary policy,a temporary positive output gap might have ensued thereby decreasing the unemployment rate while exerting huge inflationary pressures in the economy. 
C) Due to the autonomous expansion of monetary policy the unemployment rate might have artificially declined.However,the AS curve would then have shifted left to close the ensuing positive output gap thereby returning the unemployment rate to the levels prior to the Fed's action while,likely,making inflation even worse than before Mr.Volker took office. 
D) all of the above 
E) none of the above 
A) The AD curve would have likely shifted right due to the Federal Reserve lowering of interest rates which might have resulted in a temporary decline in the unemployment rate but at the cost of skyrocketing inflation. 
B) Due to the autonomous expansion of monetary policy,a temporary positive output gap might have ensued thereby decreasing the unemployment rate while exerting huge inflationary pressures in the economy. 
C) Due to the autonomous expansion of monetary policy the unemployment rate might have artificially declined.However,the AS curve would then have shifted left to close the ensuing positive output gap thereby returning the unemployment rate to the levels prior to the Fed's action while,likely,making inflation even worse than before Mr.Volker took office. 
D) all of the above 
E) none of the above

Question 7

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is an appropriate description of the mechanism that would have ensued?

Accepted Answer

A) The increase in the price of oil would have immediately shifted the AS curve to the right. 
B) The financial crisis would have led to a sharp contraction in spending shifting the AD curve to the right. 
C) Shifts in both the AD and the AS curve would have ensued in the short-run but as long as neither shock had an impact on potential output,ultimately unemployment will have been unaffected in the long run. 
D) all of the above 
E) none of the above 
A) The increase in the price of oil would have immediately shifted the AS curve to the right. 
B) The financial crisis would have led to a sharp contraction in spending shifting the AD curve to the right. 
C) Shifts in both the AD and the AS curve would have ensued in the short-run but as long as neither shock had an impact on potential output,ultimately unemployment will have been unaffected in the long run. 
D) all of the above 
E) none of the above

Question 8

AD - AS Equilibrium  
-On the graph above,if output is falling,while the quantity demanded is rising,the economy may be at a point on ________.

Accepted Answer

A) the aggregate supply curve above the aggregate demand curve 
B) the aggregate supply curve below the aggregate demand curve 
C) the aggregate demand curve above the aggregate supply curve 
D) the aggregate demand curve below the aggregate supply curve 
E) none of the above 
A) the aggregate supply curve above the aggregate demand curve 
B) the aggregate supply curve below the aggregate demand curve 
C) the aggregate demand curve above the aggregate supply curve 
D) the aggregate demand curve below the aggregate supply curve 
E) none of the above

Question 9

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,both the inflation and unemployment rates were higher than during most of the 1950s,60s and early 70s.The Federal Reserve implemented an autonomous tightening of monetary policy that resulted in the famous Volker Disinflation which was successful in bringing both problems under control.What would have been a likely long-run result had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) Eventually,inflation would have been made worse but unemployment would have been lowered. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,both inflation and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above 
A) Eventually,inflation would have been made worse but unemployment would have been lowered. 
B) Eventually,both the inflation and unemployment rates would have declined. 
C) Eventually,both inflation and unemployment would have been made worse. 
D) There would have been no effect on the unemployment and inflation rates. 
E) none of the above

Question 10

The endogenous variable in the aggregate demand curve is ________.

Accepted Answer

A) the real interest rate 
B) output 
C) inflation 
D) planned expenditure 
E) none of the above 
A) the real interest rate 
B) output 
C) inflation 
D) planned expenditure 
E) none of the above

Question 11

The aggregate demand curve is Y = 75 - 3π,and the short-run aggregate supply curve is π = 6.2 + 0.8(Y - 70).Assuming adaptive expectations,calculate the inflation rate and output for the next period.

Accepted Answer

These curves intersect with Y = 66 and π

Question 12

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience an increase?

Accepted Answer

A) according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures 
B) according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap 
C) according to the AD-AS framework,the LRAS curve would shift to the left and the ensuing positive output gap would be closed by subsequent leftward shifts in the AS curve to higher equilibrium levels of inflation 
D) all of the above 
E) none of the above 
A) according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures 
B) according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap 
C) according to the AD-AS framework,the LRAS curve would shift to the left and the ensuing positive output gap would be closed by subsequent leftward shifts in the AS curve to higher equilibrium levels of inflation 
D) all of the above 
E) none of the above

Question 13

If the unemployment rate is below its natural rate,then ________.

Accepted Answer

A) output is below its potential level 
B) there is excess tightness in the labor market 
C) the AS curve will shift to the right 
D) all of the above 
E) none of the above 
A) output is below its potential level 
B) there is excess tightness in the labor market 
C) the AS curve will shift to the right 
D) all of the above 
E) none of the above

Question 14

The aggregate demand curve shifts to the left when there is ________.

Accepted Answer

A) autonomous tightening of monetary policy 
B) an increase in the nominal interest rate 
C) an increase in inflation 
D) all of the above 
E) none of the above 
A) autonomous tightening of monetary policy 
B) an increase in the nominal interest rate 
C) an increase in inflation 
D) all of the above 
E) none of the above

Question 15

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

Accepted Answer

A) The AS curve likely shifted to the left and output likely fell because of this adverse shock. 
B) In the short-run there was a movement out of general equilibrium leading to an increase in inflation as a likely result of this adverse shock. 
C) In the short-run there was a movement out of general equilibrium leading to an increase in unemployment as a likely result of this adverse shock. 
D) all of the above 
E) none of the above 
A) The AS curve likely shifted to the left and output likely fell because of this adverse shock. 
B) In the short-run there was a movement out of general equilibrium leading to an increase in inflation as a likely result of this adverse shock. 
C) In the short-run there was a movement out of general equilibrium leading to an increase in unemployment as a likely result of this adverse shock. 
D) all of the above 
E) none of the above

Question 16

Rising inflation causes quantity demanded to decline,because ________.

Accepted Answer

A) the central bank raises the nominal interest rate by more than the increase in expected inflation 
B) households and businesses are reluctant to spend when prices rise 
C) higher inflation causes the IS curve to shift to the left 
D) all of the above 
E) none of the above 
A) the central bank raises the nominal interest rate by more than the increase in expected inflation 
B) households and businesses are reluctant to spend when prices rise 
C) higher inflation causes the IS curve to shift to the left 
D) all of the above 
E) none of the above

Question 17

-On the graph above (and considering the short run only),a combination of a negative demand shock and a negative supply shock may be represented by the movement from point ________ to point ________.

Accepted Answer

A) G;I 
B) H;F 
C) H;I 
D) G;F 
E) G;H 
A) G;I 
B) H;F 
C) H;I 
D) G;F 
E) G;H

Question 18

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

Accepted Answer

A) according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures 
B) according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap 
C) according to the AD-AS framework,the LRAS curve would shift to the right and the ensuing output gap would have to be closed by subsequent rightward shifts in the AS curve to a lower equilibrium level of inflation 
D) all of the above 
E) none of the above 
A) according to the Phillips curve,the ensuing negative unemployment gap would exert inflationary pressures 
B) according to Okun's Law,the ensuing negative unemployment gap would be consistent with a positive output gap 
C) according to the AD-AS framework,the LRAS curve would shift to the right and the ensuing output gap would have to be closed by subsequent rightward shifts in the AS curve to a lower equilibrium level of inflation 
D) all of the above 
E) none of the above

Question 19

AD - AS Equilibrium  
-On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

Accepted Answer

A) the aggregate supply curve above the aggregate demand curve 
B) the aggregate supply curve below the aggregate demand curve 
C) the aggregate demand curve above the aggregate supply curve 
D) the aggregate demand curve below the aggregate supply curve 
E) none of the above 
A) the aggregate supply curve above the aggregate demand curve 
B) the aggregate supply curve below the aggregate demand curve 
C) the aggregate demand curve above the aggregate supply curve 
D) the aggregate demand curve below the aggregate supply curve 
E) none of the above

Question 20

By the time Paul Volcker took office as the new Federal Reserve chairman in 1979,the inflation rate exceeded 10%.By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%.By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%.Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation?

Accepted Answer

A) The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982. 
B) Due to the autonomous tightening of monetary policy,a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982. 
C) By 1982,it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986. 
D) all of the above 
E) none of the above 
A) The AD curve likely shifted left due to the autonomous tightening of monetary policy which explains the lowering of the inflation rate between 1979 and 1982. 
B) Due to the autonomous tightening of monetary policy,a negative output gap ensued which explains the increase in the unemployment rate between 1979 and 1982. 
C) By 1982,it is likely that equilibrium output was lower than potential leading the AS curve to shift to the right to close the output gap toward a general equilibrium which explains the reduction in the unemployment rate and the further reduction in inflation between 1982 and 1986. 
D) all of the above 
E) none of the above

How does the aggregate supply curve differ from a supply curve for,say,bananas?

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is true of the Chinese experience?

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

The aggregate demand curve shifts to the right when there is ________.

Which of the following is (are)linked to (an)adverse supply shock(s)?

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is an appropriate description of the mechanism that would have ensued?

AD - AS Equilibrium -On the graph above,if output is falling,while the quantity demanded is rising,the economy may be at a point on ________.

The endogenous variable in the aggregate demand curve is ________.

The aggregate demand curve is Y = 75 - 3π,and the short-run aggregate supply curve is π = 6.2 + 0.8(Y - 70).Assuming adaptive expectations,calculate the inflation rate and output for the next period.

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience an increase?

If the unemployment rate is below its natural rate,then ________.

The aggregate demand curve shifts to the left when there is ________.

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

Rising inflation causes quantity demanded to decline,because ________.

-On the graph above (and considering the short run only),a combination of a negative demand shock and a negative supply shock may be represented by the movement from point to point .

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

AD - AS Equilibrium -On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

Exam 12: The Aggregate Demand and Supply Model

How does the aggregate supply curve differ from a supply curve for,say,bananas?

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is true of the Chinese experience?

The March 2000 "tech bubble" burst caused the aggregate demand curve to shift to the left by ________.

The aggregate demand curve shifts to the right when there is ________.

Which of the following is (are)linked to (an)adverse supply shock(s)?

The price of a barrel of oil doubled between 2007 and the middle of 2008.To make matters worse,a financial crisis hit the U.S.economy starting in August of 2007.Which of the following is an appropriate description of the mechanism that would have ensued?

AD - AS Equilibrium -On the graph above,if output is falling,while the quantity demanded is rising,the economy may be at a point on ________.

The endogenous variable in the aggregate demand curve is ________.

The aggregate demand curve is Y = 75 - 3π,and the short-run aggregate supply curve is π = 6.2 + 0.8(Y - 70).Assuming adaptive expectations,calculate the inflation rate and output for the next period.

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience an increase?

If the unemployment rate is below its natural rate,then ________.

The aggregate demand curve shifts to the left when there is ________.

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

Rising inflation causes quantity demanded to decline,because ________.

-On the graph above (and considering the short run only),a combination of a negative demand shock and a negative supply shock may be represented by the movement from point ________ to point ________.

Picture an economy that is in general equilibrium.What would happen if the natural rate of unemployment were to experience a decrease?

AD - AS Equilibrium -On the graph above,if inflation is rising,while the quantity demanded and output are rising,the economy may be at a point on ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

-On the graph above (and considering the short run only),a combination of a negative demand shock and a negative supply shock may be represented by the movement from point to point .