Question 1

The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.

Accepted Answer

A) capital and labor inputs 
B) technology 
C) the natural rate of unemployment 
D) all of the above 
E) none of the above 
A) capital and labor inputs 
B) technology 
C) the natural rate of unemployment 
D) all of the above 
E) none of the above

Question 2

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 short-run result had Mr.Volker conducted an expansionary monetary policy instead?

Accepted Answer

A) Inflation would have been made worse right away but unemployment would have been lowered. 
B) Both inflation and unemployment would have declined. 
C) 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) Inflation would have been made worse right away but unemployment would have been lowered. 
B) Both inflation and unemployment would have declined. 
C) 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 3

What was(were)the effect(s)of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002?

Accepted Answer

A) An ensuing lack of confidence in financial accounting. 
B) The value of corporate bonds declined. 
C) It became more expensive for firms to finance their investments. 
D) all of the above 
E) none of the above 
A) An ensuing lack of confidence in financial accounting. 
B) The value of corporate bonds declined. 
C) It became more expensive for firms to finance their investments. 
D) all of the above 
E) none of the above

Question 4

The Volcker Disinflation (1980-1986)was costly in terms of output and unemployment.Would it not have been better to reduce inflation with a positive supply shock,rather than a negative demand shock?

Accepted Answer

Probably,but a positive supply shock is

Question 5

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

Accepted Answer

A) output is below its potential level 
B) there is excess tightness in the labor market 
C) wages and prices will rise more rapidly and the AS curve will shift to the left 
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) wages and prices will rise more rapidly and the AS curve will shift to the left 
D) all of the above 
E) none of the above

Question 6

AD - AS Equilibrium  
-On the graph above,consider a point A on the aggregate supply curve and above the aggregate demand curve.At this point,________.

Accepted Answer

A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above 
A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above

Question 7

AD - AS Equilibrium  
-On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.

Accepted Answer

A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above 
A) quantity demanded equals output,but the inflation rate will fall,so output will rise 
B) quantity demanded is greater than quantity supplied,so the inflation rate will rise 
C) output is greater than the quantity demanded,so output will fall 
D) the aggregate demand curve will shift to the right until quantity demanded is equal to quantity supplied 
E) none of the above

Question 8

-On the graph above,suppose the economy is at point F when there is a temporary positive supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

A) H 
B) I 
C) F 
D) G 
E) none of the above 
A) H 
B) I 
C) F 
D) G 
E) none of the above

Question 9

As of 2009,China's economy had recovered from the global recession that began in 2008.Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

Accepted Answer

Policy in China reversed the decline in

Question 10

In the short run,________.

Accepted Answer

A) cost push shocks can cause firms to raise prices 
B) workers pushing for higher wages may lead to increases in inflation 
C) the aggregate supply curve may shift to the left with increases in expected inflation 
D) all of the above 
E) none of the above 
A) cost push shocks can cause firms to raise prices 
B) workers pushing for higher wages may lead to increases in inflation 
C) the aggregate supply curve may shift to the left with increases in expected inflation 
D) all of the above 
E) none of the above

Question 11

-On the graph above,suppose the economy has moved from point H to point G.If the shock was temporary and inflation expectations are adaptive,the economy will next ________.

Accepted Answer

A) return to point H 
B) move to point F 
C) move to a point between points G and H 
D) remain at point G 
E) none of the above 
A) return to point H 
B) move to point F 
C) move to a point between points G and H 
D) remain at point G 
E) none of the above

Question 12

The aggregate demand curve has a negative slope,because households and businesses respond to an increase in ________ by reducing their expenditures.

Accepted Answer

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

Question 13

Which equation is a plausible aggregate supply curve?

Accepted Answer

A) Y = 50 - 1.25π 
B) π = 2 + 0.3 (Y - 75) 
C) Y = 250 - 80r 
D) π = 5 - 0.4 (U - 6) 
E) none of the above 
A) Y = 50 - 1.25π 
B) π = 2 + 0.3 (Y - 75) 
C) Y = 250 - 80r 
D) π = 5 - 0.4 (U - 6) 
E) none of the above

Question 14

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

Accepted Answer

A) output is below its potential level 
B) there is excess slack in the labor market which will dive down wages 
C) inflation will decline until equilibrium output reaches its potential level 
D) all of the above 
E) none of the above 
A) output is below its potential level 
B) there is excess slack in the labor market which will dive down wages 
C) inflation will decline until equilibrium output reaches its potential level 
D) all of the above 
E) none of the above

Question 15

AD - AS Shocks  
-On the graph above,an example of a negative demand shock is the movement from point ________ to point ________.

Accepted Answer

A) F;G 
B) H;I 
C) F;H 
D) H;F 
E) none of the above 
A) F;G 
B) H;I 
C) F;H 
D) H;F 
E) none of the above

Question 16

The "tech bubble" burst of 2000,the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy.Which of the following is an appropriate description of the mechanism that would have ensued?

Accepted Answer

A) Household and business spending would have been eroded shifting the AD curve to the left. 
B) Unemployment would have risen and inflation would have fallen. 
C) Output would have declined below potential but through shifts in the AS curve,the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004. 
D) all of the above 
E) none of the above 
A) Household and business spending would have been eroded shifting the AD curve to the left. 
B) Unemployment would have risen and inflation would have fallen. 
C) Output would have declined below potential but through shifts in the AS curve,the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004. 
D) all of the above 
E) none of the above

Question 17

An economy is in long-run equilibrium when output equals potential output.Why is there no long-run equilibrium rate of "potential inflation"?

Accepted Answer

Potential output is a real variable dete

Question 18

According to the "self-correcting mechanism" in the AD-AS framework,________.

Accepted Answer

A) the aggregate demand curve shifts up or down as needed to bring the economy to full employment 
B) the inflation rate changes as needed to move the economy along the short-run aggregate supply curve until output is at potential output 
C) the long-run aggregate supply curve shifts until it intersects both the aggregate demand and short-run aggregate supply curves at a single point 
D) inflation and expected inflation are unaffected by deviations of output from potential output 
E) none of the above 
A) the aggregate demand curve shifts up or down as needed to bring the economy to full employment 
B) the inflation rate changes as needed to move the economy along the short-run aggregate supply curve until output is at potential output 
C) the long-run aggregate supply curve shifts until it intersects both the aggregate demand and short-run aggregate supply curves at a single point 
D) inflation and expected inflation are unaffected by deviations of output from potential output 
E) none of the above

Question 19

In the mid-to-late 1990s,changes in the health care industry,substantially reduced health care costs relative to other goods and services.Which of the following is an appropriate description of the mechanism behind this supply shock?

Accepted Answer

A) The AS curve likely shifted to the right which likely explains the short-run fall in unemployment. 
B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s. 
C) A positive output gap would have resulted in the short-run but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s. 
D) all of the above 
E) none of the above 
A) The AS curve likely shifted to the right which likely explains the short-run fall in unemployment. 
B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s. 
C) A positive output gap would have resulted in the short-run but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s. 
D) all of the above 
E) none of the above

Question 20

AD - AS Shocks  
-On the graph above,an example of a positive demand shock is the movement from point ________ to point ________.

Accepted Answer

A) F;G 
B) H;I 
C) F;H 
D) H;F 
E) none of the above 
A) F;G 
B) H;I 
C) F;H 
D) H;F 
E) none of the above

Exam 12: The Aggregate Demand and Supply Model

The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________.

What was(were)the effect(s)of the Enron Bankruptcy in late 2001 and other corporate scandals in 2002?

The Volcker Disinflation (1980-1986)was costly in terms of output and unemployment.Would it not have been better to reduce inflation with a positive supply shock,rather than a negative demand shock?

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

AD - AS Equilibrium -On the graph above,consider a point A on the aggregate supply curve and above the aggregate demand curve.At this point,________.

AD - AS Equilibrium -On the graph above,consider a point A on the aggregate demand curve and above the aggregate supply curve.At this point,________.

-On the graph above,suppose the economy is at point F when there is a temporary positive supply shock.The new long-run equilibrium is at point ________.

As of 2009,China's economy had recovered from the global recession that began in 2008.Use aggregate demand and aggregate supply analysis to explain why,and to explain the likely consequences for China of an increase in the growth rate of the global economy.

In the short run,________.

-On the graph above,suppose the economy has moved from point H to point G.If the shock was temporary and inflation expectations are adaptive,the economy will next ________.

The aggregate demand curve has a negative slope,because households and businesses respond to an increase in ________ by reducing their expenditures.

Which equation is a plausible aggregate supply curve?

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

AD - AS Shocks -On the graph above,an example of a negative demand shock is the movement from point ________ to point ________.

The "tech bubble" burst of 2000,the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy.Which of the following is an appropriate description of the mechanism that would have ensued?

An economy is in long-run equilibrium when output equals potential output.Why is there no long-run equilibrium rate of "potential inflation"?

According to the "self-correcting mechanism" in the AD-AS framework,________.

In the mid-to-late 1990s,changes in the health care industry,substantially reduced health care costs relative to other goods and services.Which of the following is an appropriate description of the mechanism behind this supply shock?

AD - AS Shocks -On the graph above,an example of a positive demand shock is the movement from point ________ to point ________.

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

AD - AS Shocks -On the graph above,an example of a negative demand shock is the movement from point to point .

AD - AS Shocks -On the graph above,an example of a positive demand shock is the movement from point to point .