Question 1

As income taxes rise,disposable income __________,causing __________ the AD curve.

Accepted Answer

A)  increases; movement down along 
B)  increases; a rightward shift of 
C)  decreases; movement up along 
D)  decreases; a leftward shift of

Question 2

A decrease in business taxes,causes the expected profitability of investment projects to __________,which then shifts the AD curve to the __________.

Accepted Answer

A)  rise; right 
B)  rise; left 
C)  decline; right 
D)  decline; left

Question 3

If velocity and the money supply are __________________,then when one component of spending rises another component of spending ________________.

Accepted Answer

A)  constant; must fall 
B)  constant; must rise 
C)  rising; may not necessarily fall 
D)  rising; must rise

Question 4

Suppose consumption decreases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.

Accepted Answer

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

Question 5

After an adverse supply shock occurs,the ____________ curve shifts _____________ resulting in a(n)_________________ in the U.S.price level and a(n)________________ in Real GDP.

Accepted Answer

A)  AD; leftward; decrease; decrease 
B)  AD; rightward; increase; increase 
C)  SRAS; rightward; decrease; increase 
D)  SRAS; leftward; increase; decrease

Question 6

Changes in which of the following will not cause the SRAS curve to shift?

Accepted Answer

A)  the wage rate 
B)  prices of nonlabor inputs 
C)  the price level 
D)  productivity 
E)  All of the above will cause the SRAS curve to shift.

Question 7

In short-run equilibrium,it is always true that

Accepted Answer

A)  quantity demanded of Real GDP = quantity supplied of Real GDP = Natural Real GDP. 
B)  quantity demanded of Real GDP > quantity supplied of Real GDP. 
C)  quantity demanded of Real GDP = quantity supplied of Real GDP. 
D)  a and b 
E)  There is not enough information to answer the question.

Question 8

Exhibit 8-1
 
-Refer to Exhibit 8-1. If we assume that the unemployment rate and Real GDP are inversely related,which of the points on this graph is most likely representative of the lowest unemployment rate?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 9

Which set of changes is definitely predicted to raise the price level in the short run?

Accepted Answer

A)  The money supply falls and wage rates rise. 
B)  The money supply falls and wage rates fall. 
C)  The money supply rises and wage rates fall. 
D)  Labor productivity rises and there is a beneficial supply shock. 
E)  The prices of nonlabor inputs rise and individuals expect higher (future) incomes.

Question 10

If businesses are optimistic about future sales,the short-run aggregate supply curve will shift leftward.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 8-3
 
-Refer to Exhibit 8-3. A shift in aggregate demand from AD? to AD? would have been the result of

Accepted Answer

A)  a decrease in the price level. 
B)  an increase in the price level. 
C)  a decrease in interest rates (which was not prompted by a change in the price level). 
D)  an increase in interest rates (which was not prompted by a change in the price level).

Question 12

Exhibit 8-1
 
-Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If the price of oil rises,at which point is the economy most likely to end up in the short run?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 13

As the interest rate rises,the cost of a given investment project __________ and businesses invest __________.

Accepted Answer

A)  rises; more 
B)  rises; less 
C)  falls; more 
D)  falls; less

Question 14

A rise in aggregate demand and a rise in short-run aggregate supply will definitely

Accepted Answer

A)  raise the price level, but there is not enough information to know how Real GDP will change. 
B)  lower Real GDP, but there is not enough information to know how the price level will change. 
C)  raise the price level and Real GDP. 
D)  raise Real GDP, but there is not enough information to know how the price level will change. 
E)  raise the price level and lower Real GDP.

Question 15

Can a change in the price level change aggregate demand?

Accepted Answer

A)  Yes, as the price level rises, aggregate demand falls. 
B)  Yes, but only under the condition that the real balance effect is operational. 
C)  No, only a change in a nonprice factor can change aggregate demand. 
D)  No, a change in the price level can only change aggregate supply. 
E)  none of the above

Question 16

The real balance effect works through a change in the value of

Accepted Answer

A)  monetary assets in response to changes in the unemployment rate. 
B)  nonmonetary assets in response to changes in the unemployment rate. 
C)  monetary assets in response to changes in the price level. 
D)  nonmonetary assets in response to changes in the price level.

Question 17

Subprime loans

Accepted Answer

A)  involve elevated credit risk. 
B)  involve reduced credit risk. 
C)  typically have a higher loan-to-value ratio than do prime loans. 
D)  typically have a lower loan-to-value ratio than do prime loans. 
E)  a and c

Question 18

A decrease in the price level

Accepted Answer

A)  shifts the AD curve to the right. 
B)  shifts the AD curve to the left. 
C)  causes an upward movement along the existing AD curve. 
D)  causes a downward movement along the existing AD curve. 
E)  none of the above

Question 19

Aggregate demand refers to the

Accepted Answer

A)  quantity demanded of all goods and services at various price levels, ceteris paribus. 
B)  quantity demanded of all goods and services at a particular price level, ceteris paribus. 
C)  quantity demanded of Real GDP at various price levels, ceteris paribus. 
D)  various amounts of GDP that are demanded at various price levels, ceteris paribus. 
E)  a and c

Question 20

Starting from short-run equilibrium,the following occurs: labor productivity rises and individuals expect higher (future)incomes.What is the effect on the price level and Real GDP in the short run?

Accepted Answer

A)  Real GDP falls and the price level necessarily rises. 
B)  Real GDP rises and the effect on the price level cannot be determined. 
C)  Real GDP rises and the price level necessarily falls. 
D)  Real GDP falls and the effect on the price level cannot be determined. 
E)  Real GDP rises and the price level necessarily rises.

Exam 8: Aggregate Demand and Aggregate Supply

As income taxes rise,disposable income ,causing the AD curve.

A decrease in business taxes,causes the expected profitability of investment projects to ,which then shifts the AD curve to the .

If velocity and the money supply are __,then when one component of spending rises another component of spending .

Suppose consumption decreases at each price level.As a result,aggregate demand ,and the AD curve shifts .

After an adverse supply shock occurs,the ______ curve shifts _ resulting in a(n) _ in the U.S.price level and a(n) ______ in Real GDP.

Changes in which of the following will not cause the SRAS curve to shift?

In short-run equilibrium,it is always true that

Exhibit 8-1 -Refer to Exhibit 8-1. If we assume that the unemployment rate and Real GDP are inversely related,which of the points on this graph is most likely representative of the lowest unemployment rate?

Which set of changes is definitely predicted to raise the price level in the short run?

If businesses are optimistic about future sales,the short-run aggregate supply curve will shift leftward.

Exhibit 8-3 -Refer to Exhibit 8-3. A shift in aggregate demand from AD? to AD? would have been the result of

Exhibit 8-1 -Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If the price of oil rises,at which point is the economy most likely to end up in the short run?

As the interest rate rises,the cost of a given investment project and businesses invest .

A rise in aggregate demand and a rise in short-run aggregate supply will definitely

Can a change in the price level change aggregate demand?

The real balance effect works through a change in the value of

Subprime loans

A decrease in the price level

Aggregate demand refers to the

Starting from short-run equilibrium,the following occurs: labor productivity rises and individuals expect higher (future) incomes.What is the effect on the price level and Real GDP in the short run?

Exam 8: Aggregate Demand and Aggregate Supply

As income taxes rise,disposable income __________,causing __________ the AD curve.

A decrease in business taxes,causes the expected profitability of investment projects to __________,which then shifts the AD curve to the __________.

If velocity and the money supply are __________________,then when one component of spending rises another component of spending ________________.

Suppose consumption decreases at each price level.As a result,aggregate demand __________,and the AD curve shifts __________.

After an adverse supply shock occurs,the ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S.price level and a(n) ________________ in Real GDP.

Changes in which of the following will not cause the SRAS curve to shift?

In short-run equilibrium,it is always true that

Exhibit 8-1 -Refer to Exhibit 8-1. If we assume that the unemployment rate and Real GDP are inversely related,which of the points on this graph is most likely representative of the lowest unemployment rate?

Which set of changes is definitely predicted to raise the price level in the short run?

If businesses are optimistic about future sales,the short-run aggregate supply curve will shift leftward.

Exhibit 8-3 -Refer to Exhibit 8-3. A shift in aggregate demand from AD? to AD? would have been the result of

Exhibit 8-1 -Refer to Exhibit 8-1. Assume the economy is originally in equilibrium at point A. If the price of oil rises,at which point is the economy most likely to end up in the short run?

As the interest rate rises,the cost of a given investment project __________ and businesses invest __________.

A rise in aggregate demand and a rise in short-run aggregate supply will definitely

Can a change in the price level change aggregate demand?

The real balance effect works through a change in the value of

Subprime loans

A decrease in the price level

Aggregate demand refers to the

Starting from short-run equilibrium,the following occurs: labor productivity rises and individuals expect higher (future) incomes.What is the effect on the price level and Real GDP in the short run?

As income taxes rise,disposable income ,causing the AD curve.

A decrease in business taxes,causes the expected profitability of investment projects to ,which then shifts the AD curve to the .

If velocity and the money supply are __,then when one component of spending rises another component of spending .

Suppose consumption decreases at each price level.As a result,aggregate demand ,and the AD curve shifts .

After an adverse supply shock occurs,the ______ curve shifts _ resulting in a(n) _ in the U.S.price level and a(n) ______ in Real GDP.

As the interest rate rises,the cost of a given investment project and businesses invest .