Question 1

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run, everything else held constant.

Accepted Answer

A)  an increase; an increase 
B)  a decrease; a decrease 
C)  a decrease; an increase 
D)  an increase; a decrease

Question 2

The Phillips curve indicates that when the labor market is ________, production costs will ________ and aggregate supply decreases.

Accepted Answer

A)  easy; rise 
B)  easy; fall 
C)  tight; fall 
D)  tight; rise

Question 3

According to aggregate demand and supply analysis, the favorable supply shock of 1995-1999 had the effect of

Accepted Answer

A)  increasing aggregate output, lowering unemployment, and raising inflation. 
B)  decreasing aggregate output, raising unemployment, and raising inflation. 
C)  increasing aggregate output, lowering unemployment, and lowering inflation. 
D)  decreasing aggregate output, raising unemployment, and lowering inflation.

Question 4

According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 5

Everything else held constant, an increase in the cost of production ________ aggregate ________.

Accepted Answer

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

Question 6

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant.

Accepted Answer

A)  an increase; an increase 
B)  a decrease; a decrease 
C)  no change; an increase 
D)  no change; a decrease

Question 7

Suppose the U.S. economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause ________ in real GDP in the long run and ________ in inflation in the long run, everything else held constant.

Accepted Answer

A)  no change; an increase 
B)  no change; a decrease 
C)  an increase; an increase 
D)  a decrease; a decrease

Question 8

According to aggregate demand and supply analysis, the negative demand shock of 2000-2004 had the effect of

Accepted Answer

A)  increasing aggregate output, lowering unemployment, and raising inflation. 
B)  decreasing aggregate output, raising unemployment, and raising inflation. 
C)  increasing aggregate output, lowering unemployment, and lowering inflation. 
D)  decreasing aggregate output, raising unemployment, and lowering inflation.

Question 9

The long-run aggregate supply curve shifts to the right when there is

Accepted Answer

A)  a decrease in the total amount of capital in the economy. 
B)  a decrease in the total amount of labor supplied in the economy. 
C)  a decrease in the available technology. 
D)  a decline in the natural rate of unemployment.

Question 10

This theory views shocks to tastes (workers' willingness to work, for example) and technology (productivity) as the major driving forces behind short-run fluctuations in the business cycle because these shocks lead to substantial short-run fluctuations in the natural rate of output.

Accepted Answer

A)  The natural rate hypothesis 
B)  Hysteresis 
C)  Real business cycle theory 
D)  The Phillips curve model

Question 11

The Phillips curve indicates that when the labor market is ________, production costs will ________ and aggregate supply increases.

Accepted Answer

A)  easy; rise 
B)  easy; fall 
C)  tight; fall 
D)  tight; rise

Question 12

Everything else held constant, an autonomous monetary policy tightening ________ aggregate ________.

Accepted Answer

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

Question 13

Everything else held constant, which of the following does not cause aggregate demand to increase?

Accepted Answer

A)  An increase in net exports 
B)  An increase in government spending 
C)  An increase in taxes 
D)  An increase in consumer optimism

Question 14

Using the aggregate demand-aggregate supply model, explain and demonstrate graphically the short-run and long-run effects of an increase in the money supply.

Accepted Answer

The answer of Using the aggregate demand-aggregate supply model, explain...

Question 15

A theory of aggregate economic fluctuations called real business cycle theory holds that

Accepted Answer

A)  changes in the real money supply are the only demand shocks that affect the natural rate of output. 
B)  aggregate demand shocks do affect the natural rate of output. 
C)  aggregate supply shocks do affect the natural rate of output. 
D)  changes in net exports are the only demand shocks that affect the natural rate of output.

Question 16

Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

Accepted Answer

The answer of Explain through the component parts of aggregate...

Question 17

Which of the following increases aggregate supply in the short-run, everything else held constant?

Accepted Answer

A)  An increase in the price of crude oil. 
B)  A successful wage push by workers. 
C)  Expectations of a higher inflation. 
D)  A technological improvement that increases worker productivity.

Question 18

Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run.

Accepted Answer

The answer of Explain and demonstrate graphically the effects of...

Question 19

Everything else held constant, a decrease in net exports ________ aggregate ________.

Accepted Answer

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

Question 20

Everything else held constant, aggregate demand increases when

Accepted Answer

A)  net exports decrease. 
B)  taxes increase. 
C)  planned investment spending increases. 
D)  the money supply decreases.

Exam 23: Aggregate Demand and Supply Analysis

The Phillips curve indicates that when the labor market is , production costs will and aggregate supply decreases.

According to aggregate demand and supply analysis, the favorable supply shock of 1995-1999 had the effect of

According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to and the level of real aggregate output to .

Everything else held constant, an increase in the cost of production aggregate .

Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause in real GDP in the long run and in inflation in the long run, everything else held constant.

Suppose the U.S. economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause in real GDP in the long run and in inflation in the long run, everything else held constant.