Question 1

Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:

Accepted Answer

A)  the SRAS curve. 
B)  the AD curve. 
C)  the LRAS curve. 
D)  both the SRAS curve and the LRAS curve.

Question 2

An increase in investment spending leads to _____ in the price level and _____ in real GDP in the short run.

Accepted Answer

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

Question 3

An inflationary gap occurs if:

Accepted Answer

A)  actual real GDP is less than potential output. 
B)  actual real GDP is greater than potential output. 
C)  actual real GDP is equal to potential output. 
D)  unemployment is greater than the natural rate.

Question 4

If actual GDP is less than potential output, then the economy is:

Accepted Answer

A)  in an inflationary gap. 
B)  in a recessionary gap. 
C)  in a long-run equilibrium. 
D)  at full employment.

Question 5

Suppose that the aggregate output level is lower than potential output. Which statement is FALSE?

Accepted Answer

A)  Workers are abundant. 
B)  Jobs are scarce. 
C)  Nominal wages will fall over time. 
D)  The short-run aggregate supply curve will gradually shift to the left.

Question 6

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps 
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy:

Accepted Answer

A)  in a recessionary gap. 
B)  in an inflationary gap. 
C)  in long-run equilibrium. 
D)  with an unusually low unemployment rate.

Question 7

The short-run aggregate supply curve is positively sloped because:

Accepted Answer

A)  business people are subject to money illusion. 
B)  wages are sticky. 
C)  workers care about nominal wages, not real wages. 
D)  of diminishing returns to labor.

Question 8

Which factor will increase short-run aggregate supply?

Accepted Answer

A)  a law that requires health insurance for all employees 
B)  an increase in the aggregate price level 
C)  a large decrease in the price of oil 
D)  an increase in the minimum wage

Question 9

When the price level increases and people want to hold more money, interest rates decrease.

Accepted Answer

A) True 
 B)False

Question 10

A shift to the right of the short-run aggregate supply curve may be caused by a(n):

Accepted Answer

A)  decrease in productivity. 
B)  increase in productivity. 
C)  increase in the price of inputs. 
D)  increase in wages.

Question 11

Use the following to answer questions:
Figure: Policy Alternatives 
-(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (b), it is in:

Accepted Answer

A)  a recessionary gap. 
B)  an inflationary gap. 
C)  simultaneous short-run and long-run equilibrium. 
D)  full employment.

Question 12

Use the following to answer questions:
Figure: Aggregate Supply 
-(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual potential is _____ potential output.

Accepted Answer

A)  increase; left; equal to 
B)  increase; right; greater than 
C)  decrease; right; equal to 
D)  decrease; right; less than

Question 13

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

Accepted Answer

A) True 
 B)False

Question 14

An increase in health care insurance premiums would likely cause a decrease in short-run aggregate supply and shift the short-run aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions:
Figure: An Increase in Aggregate Demand 
-(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. At the Y2 level of real GDP:

Accepted Answer

A)  an inflationary gap equal to the sum of Y2 and YP occurs. 
B)  an inflationary gap equal to the difference between Y2 and YP occurs. 
C)  the solution at Y2 is a long-run equilibrium. 
D)  a recessionary gap equal to the difference between Y2 and YP occurs.

Question 16

A recessionary gap gradually:

Accepted Answer

A)  increases short-run aggregate supply. 
B)  decreases short-run aggregate supply. 
C)  increases aggregate demand. 
D)  decreases aggregate demand.

Question 17

An increase in the minimum wage would likely:

Accepted Answer

A)  cause a movement up the short-run aggregate supply curve from left to right. 
B)  cause a movement down the short-run aggregate supply curve from right to left. 
C)  shift the short-run aggregate supply curve to the right. 
D)  shift the short-run aggregate supply curve to the left.

Question 18

An improvement in the business outlook of firms is a type of positive _____ shock and therefore shifts the _____ curve to the _____.

Accepted Answer

A)  supply; long-run aggregate supply; right 
B)  demand; aggregate demand; left 
C)  supply; short-run aggregate supply; right 
D)  demand; aggregate demand; right

Question 19

The purchasing power of money increased during the oil crisis of 1979 because the aggregate price level increased but the growth rate of the money supply was faster than the increase in the price level.

Accepted Answer

A) True 
 B)False

Question 20

An inflationary gap caused by a demand shock can be addressed by _____ to _____.

Accepted Answer

A)  raising government spending; lower the unemployment rate 
B)  raising taxes; lower the unemployment rate 
C)  lowering government spending; lower the aggregate price level 
D)  lowering taxes; lower the aggregate price level

Exam 12: Aggregate Demand and Aggregate Supply

Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:

An increase in investment spending leads to _ in the price level and _ in real GDP in the short run.

An inflationary gap occurs if:

If actual GDP is less than potential output, then the economy is:

Suppose that the aggregate output level is lower than potential output. Which statement is FALSE?

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy:

The short-run aggregate supply curve is positively sloped because:

Which factor will increase short-run aggregate supply?

When the price level increases and people want to hold more money, interest rates decrease.

A shift to the right of the short-run aggregate supply curve may be caused by a(n) :

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (b) , it is in:

Use the following to answer questions: Figure: Aggregate Supply -(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. If the economy is at point E, nominal wages will ___, and the short-run aggregate supply curve will shift _ until actual potential is ___ potential output.

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

An increase in health care insurance premiums would likely cause a decrease in short-run aggregate supply and shift the short-run aggregate supply curve to the left.

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. At the Y₂ level of real GDP:

A recessionary gap gradually:

An increase in the minimum wage would likely:

An improvement in the business outlook of firms is a type of positive ___ shock and therefore shifts the _ curve to the ___.

The purchasing power of money increased during the oil crisis of 1979 because the aggregate price level increased but the growth rate of the money supply was faster than the increase in the price level.

An inflationary gap caused by a demand shock can be addressed by _ to _.

Exam 12: Aggregate Demand and Aggregate Supply

Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:

An increase in investment spending leads to _____ in the price level and _____ in real GDP in the short run.

An inflationary gap occurs if:

If actual GDP is less than potential output, then the economy is:

Suppose that the aggregate output level is lower than potential output. Which statement is FALSE?

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy:

The short-run aggregate supply curve is positively sloped because:

Which factor will increase short-run aggregate supply?

When the price level increases and people want to hold more money, interest rates decrease.

A shift to the right of the short-run aggregate supply curve may be caused by a(n) :

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (b) , it is in:

Use the following to answer questions: Figure: Aggregate Supply -(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual potential is _____ potential output.

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

An increase in health care insurance premiums would likely cause a decrease in short-run aggregate supply and shift the short-run aggregate supply curve to the left.

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. At the Y2 level of real GDP:

A recessionary gap gradually:

An increase in the minimum wage would likely:

An improvement in the business outlook of firms is a type of positive _____ shock and therefore shifts the _____ curve to the _____.

The purchasing power of money increased during the oil crisis of 1979 because the aggregate price level increased but the growth rate of the money supply was faster than the increase in the price level.

An inflationary gap caused by a demand shock can be addressed by _____ to _____.

An increase in investment spending leads to _ in the price level and _ in real GDP in the short run.

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y₁ in panel (b) , it is in:

Use the following to answer questions: Figure: Aggregate Supply -(Figure: Aggregate Supply) Refer to Figure: Aggregate Supply. If the economy is at point E, nominal wages will ___, and the short-run aggregate supply curve will shift _ until actual potential is ___ potential output.

Use the following to answer questions: Figure: An Increase in Aggregate Demand -(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. At the Y₂ level of real GDP:

An improvement in the business outlook of firms is a type of positive ___ shock and therefore shifts the _ curve to the ___.

An inflationary gap caused by a demand shock can be addressed by _ to _.