Question 1

The aggregate demand curve is downward sloping because a decrease in the price level increases the ________ money supply which ________ interest rates and increases the equilibrium level of aggregate output, everything else held constant.

Accepted Answer

A)  real; lowers 
B)  real; raises 
C)  nominal; lowers 
D)  nominal; raises

Question 2

Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations, they do not see much need for activist policy to eliminate high unemployment. "They" refers to proponents of ________.

Accepted Answer

A)  the natural rate hypothesis 
B)  monetarism 
C)  the Phillips curve model 
D)  real business cycle theory

Question 3

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short 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 4

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in the inflation rate in the short run.

Accepted Answer

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

Question 5

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

The answer of As of 2009, China's economy had recovered...

Question 6

What is the shape of the long-run aggregate supply curve? Why?

Accepted Answer

The answer of What is the shape of the long-run...

Question 7

Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the inflation rate in the short 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 8

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 9

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 the aggregate price level 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 10

Suppose the Canadian economy is producing at the natural rate of output. An appreciation of the Canadian dollar will cause ________ in real GDP in the short run and ________ in the aggregate price level in the long run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.)

Accepted Answer

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

Question 11

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 12

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 13

-In the figure above, at point 2, the shift of the aggregate supply curve from AS1 to AS2 is a result of ________ wages that ________ production cost.

Accepted Answer

A)  increasing; increase 
B)  increasing; reduce 
C)  decreasing; decrease 
D)  decreasing; increase

Question 14

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Bank of Canada will cause ________ in real GDP the short run and ________ in the inflation rate in the short 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 15

Everything else held constant, aggregate demand increases when ________.

Accepted Answer

A)  taxes are cut 
B)  government spending is reduced 
C)  animal spirits decrease 
D)  the money supply is reduced

Question 16

By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes ________.

Accepted Answer

A)  an increase in real interest rates, an increase in investment spending, and a decline in aggregate output demand 
B)  a decline in real interest rates, a decrease in investment spending, and an increase in aggregate output demand 
C)  a decline in real interest rates, an increase in investment spending, and an increase in aggregate output demand 
D)  an increase in real interest rates, a decline in investment spending, and a decline in aggregate output demand

Question 17

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 18

Everything else held constant, an increase in government spending ________ aggregate ________.

Accepted Answer

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

Question 19

Autonomous monetary policy ________ real interest rates and ________ aggregate output temporarily.

Accepted Answer

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

Question 20

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 increase led by workers 
C)  Expectations of a higher inflation rate 
D)  A technological improvement that increases worker productivity

Exam 23: Aggregate Demand and Supply Analysis

The aggregate demand curve is downward sloping because a decrease in the price level increases the money supply which interest rates and increases the equilibrium level of aggregate output, everything else held constant.

Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations, they do not see much need for activist policy to eliminate high unemployment. "They" refers to proponents of ________.

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause in real GDP in the short run and in the inflation rate in the short run, everything else held constant.

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause in the unemployment rate in the long run and in the inflation rate in the short run.

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.

What is the shape of the long-run aggregate supply curve? Why?

Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause in real GDP in the short run and in the inflation rate in the short run, everything else held constant.

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

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

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.

-In the figure above, at point 2, the shift of the aggregate supply curve from AS1 to AS2 is a result of wages that production cost.

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

Everything else held constant, aggregate demand increases when ________.

By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes ________.

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.

Everything else held constant, an increase in government spending aggregate .

Autonomous monetary policy real interest rates and aggregate output temporarily.

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