Question 1

If aggregate demand grows only slightly faster than potential GDP, then the economy will____________

Accepted Answer

A)  experience economic growth with low inflation 
B)  experience economic growth with high inflation 
C)  experience recession 
D)  be at a business-cycle peak

Question 2

-In the above figure, the economy is at point A. Then the price level falls to 90 while the money wage rate does not change. Firms will be willing to supply output equal to

Accepted Answer

A)  $13.0 trillion 
B)  less than $13.0 trillion 
C)  more than $13.0 trillion 
D)  Without more information, it is impossible to determine which of the above answers is correct.

Question 3

Wealth and substitution effects explain why the aggregate demand curve has a positive slope.

Accepted Answer

A) True 
 B)False

Question 4

-In the above figure, the aggregate demand curve is AD2, so the short-run equilibrium level of real GDP is

Accepted Answer

A)  $13.5 trillion. 
B)  more than $13 and less than $13.5 trillion. 
C)  $13 trillion. 
D)  None of the above answers is correct.

Question 5

The aggregate demand curve illustrates that, as the price level rises,

Accepted Answer

A)  the quantity of real GDP demanded increases. 
B)  the AD curve shifts leftward. 
C)  the AD curve shifts rightward. 
D)  the quantity of real GDP demanded decreases.

Question 6

A decrease in government transfer payments

Accepted Answer

A)  decreases aggregate demand. 
B)  increases the aggregate quantity demanded. 
C)  increases aggregate demand. 
D)  decreases the aggregate quantity demanded.

Question 7

When the price level rises, the long-run aggregate supply curve___________ .

Accepted Answer

A)  shifts rightward 
B)  does not shift 
C)  shifts leftward 
D)  slopes upward

Question 8

According to the intertemporal substitution effect, a higher price level

Accepted Answer

A)  makes it less costly for people to buy houses and cars. 
B)  decreases the quantity of real GDP demanded. 
C)  lowers the costs of building new plants and equipment. 
D)  increases the quantity of real GDP demanded.

Question 9

When an increase in aggregate demand exceeds the increase in aggregate supply,

Accepted Answer

A)  the price level falls while real GDP increases. 
B)  real GDP decreases while nominal GDP increases. 
C)  nominal GDP decreases and real GDP decreases. 
D)  the economy will experience inflation as the price level rises.

Question 10

The long-run aggregate supply curve illustrates the

Accepted Answer

A)  surpluses, shortages and equilibrium level of GDP. 
B)  amount of products producers offer at various prices when money wages and other resource prices do not change. 
C)  relationship of the price level and real GDP when the economy is at full employment. 
D)  relationship of aggregate supply and aggregate demand.

Question 11

What two variables are determined in an aggregate supply-aggregate demand figure? Is the slope of the short-run aggregate supply curve positive or negative? Is the slope of the aggregate demand curve positive or negative?

Accepted Answer

The answer of What two variables are determined in an...

Question 12

In the short-run, real GDP can be greater than or less than potential GDP because in the short run the

Accepted Answer

A)  money wage rate is fixed. 
B)  price level is fixed. 
C)  quantity of capital is fixed. 
D)  full-employment level of employment is fixed.

Question 13

What are the substitution effects that affect aggregate demand?

Accepted Answer

The answer of What are the substitution effects that affect...

Question 14

A change in the price level does not shift the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 15

-In the above figure, at the price level of 140 and real GDP of

Accepted Answer

A)  $12 trillion, consumers will not be able to buy all the goods and services they demand. 
B)  $4 trillion, consumers will not be able to buy all the goods and services they demand. 
C)  $4 trillion, firms will not be able to sell all their output. 
D)  $12 trillion, firms will not be able to sell all their output.

Question 16

Inflation occurs over time as a result of

Accepted Answer

A)  aggregate demand increasing faster than long-run aggregate supply. 
B)  decreases in aggregate demand. 
C)  long-run aggregate supply increasing faster than aggregate demand. 
D)  long-run aggregate supply increasing faster than short-run aggregate supply.

Question 17

Which of the following statements correctly describes the policy stance of a macroeconomist?

Accepted Answer

A)  A monetarist believes that the quantity of money should be constantly changed in order to offset changes in aggregate demand. 
B)  A Keynesian would believes that if taxes are always kept low and the quantity of money is kept on a steady growth path, no policy actions will be needed to maintain full employment. 
C)  A new classical macroeconomist believes that fiscal and monetary policy are required to maintain full employment. 
D)  A classical macroeconomist believes that maintaining consistently low taxes will allow the economy to expand at an appropriate and rapid pace.

Question 18

The AD curve slopes

Accepted Answer

A)  downward due to the wealth and substitution effects. 
B)  upward due to the wealth and substitution effects. 
C)  upward due to the price and substitution effects. 
D)  downward due to the wealth and price effects.

Question 19

$$\begin{array} { | l | l | l | l | } 
\hline \begin{array} { l } 
\text { Price } \
\text { level }
\end{array} & \begin{array} { l } 
\text { A ggregate } \
\text { demand } \
\text { (trillions of } \
\text { 2005 dollars) }
\end{array} & \begin{array} { l } 
\text { Short-run } \
\text { aggregate } \
\text { supply } \
\text { (trillions of } \
\text { 2005 dollars) }
\end{array} & \begin{array} { l } 
\text { Long-run } \
\text { aggregate } \
\text { supply } \
\text { (trillions of } \
\text { 2005 dollars) }
\end{array} \
\hline 140 & 4 & 8 & 7 \
\hline 130 & 5 & 7 & 7 \
\hline 120 & 6 & 6 & 7 \
\hline 110 & 7 & 5 & 7 \
\hline 100 & 8 & 4 & 7 \
\hline
\end{array}$$
-The data in the above table show that when the price level is 120,

Accepted Answer

A)  the long-run aggregate supply curve will shift leftward in the future. 
B)  the unemployment rate is below its natural rate. 
C)  the unemployment rate is above its natural rate. 
D)  money wages rates will rise in the future.

Question 20

-In the above figure, which part corresponds to an increase in the money wage rate?

Accepted Answer

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

Exam 10: Aggregate Supply and Aggregate Demand