Question 1

Taking no action and allowing an economy to adjust by itself is called a nonintervention policy.

Accepted Answer

A) True 
 B)False

Question 2

The short-run aggregate supply shows the amount of real GDP that will be

Accepted Answer

A) made available at various price levels. 
B) purchased at various price levels. 
C) purchased at various national income levels. 
D) made available at various national income levels.

Question 3

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

Accepted Answer

A) A change in aggregate supply is represented by a movement along the aggregate supply curve in response to a price change, while a change in aggregate output supplied is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level. 
B) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in the actual price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the expected price level. 
C) A change in aggregate supply is represented by a shift of the aggregate supply curve in response to a change in a determinant of aggregate supply other than the price level, while a change in aggregate output supplied is represented by a movement along the aggregate supply curve in response to a change in the price level. 
D) There is no difference between the two terms.

Question 4

The short-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Accepted Answer

A) True 
 B)False

Question 5

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Accepted Answer

A) It will have no effect on our aggregate demand. 
B) U.S.aggregate demand will increase. 
C) U.S.aggregate demand will decrease. 
D) It depends on whether the U.S.offers financial aid to these countries.

Question 6

An economic analysis of the short run is useful to explain

Accepted Answer

A) how deviations of real GDP from potential output can and do occur. 
B) how deviations of nominal GDP from potential output can and do occur. 
C) why the long-run aggregate supply curve is vertical. 
D) how an economy's maximum output is determined.

Question 7

All other things unchanged, an increase in personal income tax rates will

Accepted Answer

A) shift the aggregate demand curve to the right. 
B) shift the aggregate demand curve to the left. 
C) make the aggregate demand curve flatter. 
D) make the aggregate demand curve steeper.

Question 8

To eliminate an inflationary gap, policy-makers may pursue

Accepted Answer

A) an expansionary policy that reduces the price level. 
B) a contractionary policy that decreases aggregate demand. 
C) a non-intervention policy that leaves aggregate demand unaffected and increases aggregate supply. 
D) an intervention policy that increases aggregate supply and decreases aggregate demand.

Question 9

What happens in the domestic economy when there is a decrease in foreign prices, all other things unchanged?

Accepted Answer

A) Net exports and aggregate demand fall. 
B) Net exports fall and aggregate demand increases. 
C) Net exports and aggregate demand increase. 
D) Net exports rise and aggregate demand falls.

Question 10

The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment.

Accepted Answer

A) True 
 B)False

Question 11

The economy's potential output corresponds to the level of

Accepted Answer

A) natural employment. 
B) frictional unemployment. 
C) structural unemployment. 
D) cyclical unemployment.

Question 12

In the long run, real output can be less than, equal to, or greater than the economy's potential output.

Accepted Answer

A) True 
 B)False

Question 13

The short run in macroeconomics is a period in which wages and some other prices are sticky.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Accepted Answer

A) To fund the government spending, more money must be printed.The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. 
B) The initial change in spending will cause an increase in real GDP and it also becomes income to someone else.As a result, the government's tax revenue increases which in turn allows the government to further increase its spending. 
C) The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption. 
D) The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services.The resulting increases in wages and investment demand leads to increased real GDP.

Question 15

In the long run, the output level is determined by

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) the government. 
D) household income.

Question 16

Potential output is

Accepted Answer

A) the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. 
B) the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. 
C) the level of real GDP that exists when the actual rate of unemployment is zero. 
D) the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.

Question 17

Which of the following is a source of wage stickiness?
I.fixed wage contracts
II.minimum wage laws
III.workers and firms want to avoid complexity of negotiating contracts frequently

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 18

Suppose that government spending on defense rises by $50 billion.What happens to the aggregate demand curve?

Accepted Answer

A) It shifts right by $50 billion at each price level. 
B) It shifts right by more than $50 billion at each price level. 
C) It shifts right by less than $50 billion at each price level. 
D) The aggregate demand does not shift; the aggregate supply curve shifts right by $50 billion at each price level.

Question 19

Suppose the price of an important natural resource such as oil falls.What will be the effect on the short-run aggregate supply curve?

Accepted Answer

A) There will be movement to the left, along the aggregate supply curve. 
B) The aggregate supply curve will shift to the left. 
C) There will be movement to the right, along the aggregate supply curve. 
D) The aggregate supply curve will shift to the right.

Question 20

Aggregate demand is defined as

Accepted Answer

A) the demand for goods and services generated by all sectors in the economy, holding price level constant. 
B) the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged. 
C) the relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged. 
D) the relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged.

Exam 22: Aggregate Demand and Aggregate Supply

Taking no action and allowing an economy to adjust by itself is called a nonintervention policy.

The short-run aggregate supply shows the amount of real GDP that will be

What is the difference between a change in aggregate supply and a change in aggregate output supplied?

The short-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

An economic analysis of the short run is useful to explain

All other things unchanged, an increase in personal income tax rates will

To eliminate an inflationary gap, policy-makers may pursue

What happens in the domestic economy when there is a decrease in foreign prices, all other things unchanged?

The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment.

The economy's potential output corresponds to the level of

In the long run, real output can be less than, equal to, or greater than the economy's potential output.

The short run in macroeconomics is a period in which wages and some other prices are sticky.

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

In the long run, the output level is determined by

Potential output is

Which of the following is a source of wage stickiness? I.fixed wage contracts II.minimum wage laws III.workers and firms want to avoid complexity of negotiating contracts frequently

Suppose that government spending on defense rises by $50 billion.What happens to the aggregate demand curve?

Suppose the price of an important natural resource such as oil falls.What will be the effect on the short-run aggregate supply curve?

Aggregate demand is defined as