Question 1

Which of the following is true?

Accepted Answer

A) At full employment, aggregate supply is equal to potential GDP. 
B) Potential GDP increases as the price level increases. 
C) Aggregate supply is another name for potential GDP. 
D) The potential GDP line has a negative slope. 
E) Potential GDP decreases as the price level increases.

Question 2

A fall in the price level brings a-------------------- in the real wage rate that-------------------- profits which leads to--------------------
.

Accepted Answer

A) rise; reduces; firms temporarily shutting down 
B) rise; increases; firms restarting production 
C) rise; reduces; firms restarting production 
D) fall; increases; firms temporarily shutting down 
E) rise; increases; firms temporarily shutting down

Question 3

At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately

Accepted Answer

A) $26,000. 
B) $15,400. 
C) $30,000. 
D) $20,000. 
E) $12,780.

Question 4

A demand-pull inflation consists of --------------------shifts in the AD curve and-------------------- shifts in the AS curve.

Accepted Answer

A) leftward; leftward 
B) rightward; rightward 
C) rightward; leftward 
D) leftward; rightward 
E) right; no

Question 5

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from --------------------, and the government policy to eliminate this gap will --------------------real GDP and to-------------------- the price level.

Accepted Answer

A) a recessionary gap; increase; increase 
B) an inflationary gap; increase; decrease 
C) a recessionary gap; decrease; increase 
D) a recessionary gap; decrease; decrease 
E) an inflationary gap; decrease; increase

Question 6

The aggregate supply curve shifts

Accepted Answer

A) leftward if the aggregate demand curve shifts leftward. 
B) rightward if the money wage rate rises. 
C) rightward if potential GDP decreases. 
D) rightward if the money wage rate falls. 
E) leftward if potential GDP increases.

Question 7

A year over year -------------------- in the buying power of money means that definitely-------------------- from one year to the next.

Accepted Answer

A) decrease; the price level increased 
B) increase; the price level increased 
C) decrease; inflation increased 
D) increase; inflation increased 
E) Both answers A and C are correct.

Question 8

The --------------------the  -------------------- 	is the quantity of real GDP supplied.

Accepted Answer

A) greater the demand for labor; smaller 
B) higher the price level; greater 
C) lower the supply of labor; greater 
D) lower aggregate demand; greater 
E) lower the price level; greater

Question 9

If demand pull inflation occurs when the economy is already at potential GDP, then following the
Initial increase in aggregate demand, the

Accepted Answer

A) potential GDP line shifts rightward. 
B) AS curve shifts leftward. 
C) potential GDP line shifts leftward. 
D) AS curve shifts rightward. 
E) None of the above are correct because demand-pull inflation shifts only the aggregate demand curve.

Question 10

All of the following shift the aggregate demand curve to the right EXCEPT

Accepted Answer

A) an increase in foreign income. 
B) an increase in expected future profit. 
C) an expansion of the global economy. 
D) an increase in government expenditure. 
E) an increase in taxes.

Question 11

Because there is a-------------------- relationship between the price level and the quantity of real GDP 	 supplied, the aggregate supply curve is  --------------------curve.

Accepted Answer

A) negative; a downward-sloping 
B) negative; an upward-sloping 
C) positive; a downward-sloping 
D) positive; an upward-sloping 
E) positive; a vertical

Question 12

A demand-pull inflation initially is characterized by

Accepted Answer

A) increasing real output and a labor surplus. 
B) increasing real output and a labor shortage. 
C) no change in real output and a labor shortage. 
D) decreasing real output and a labor surplus. 
E) decreasing real output and a labor shortage.

Question 13

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve

Accepted Answer

A) will shift rightward because people will increase spending now. 
B) will not change until income actually rises. 
C) and the AS curve will both shift leftward because people will increase their saving. 
D) will shift leftward because people will spend less now. 
E) will not shift but potential GDP will increase.

Question 14

Which of the following shifts the aggregate supply curve leftward?

Accepted Answer

A) a decrease in the price level 
B) a fall in the real wage rate 
C) a decrease in potential GDP 
D) a fall in the money wage rate 
E) an increase in potential GDP

Question 15

Aggregate demand-------------------- and shifts the AD curve--------------------   	when -------------------- .

Accepted Answer

A) increases; rightward; foreign incomes increase 
B) decreases; leftward; the price level rises 
C) decreases; rightward; government expenditure increases 
D) increases; leftward; taxes increase 
E) increases; rightward; taxes increase

Question 16

If the money wage rate increases, then the

Accepted Answer

A) aggregate demand curve shifts leftward. 
B) aggregate supply curve shifts rightward. 
C) aggregate supply curve shifts leftward. 
D) potential GDP decreases. 
E) potential GDP increases.

Question 17

-

In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of

Accepted Answer

A) a rise in the price level. 
B) a tax cut. 
C) an increased expectation of a recession that lowers people's expected future incomes.6 
D) a fall in the price level. 
E) a decrease in the foreign exchange rate.

Question 18

When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms

Accepted Answer

A) decrease production and increase prices. 
B) decrease production and prices. 
C) increase production and lower prices. 
D) increase production and prices. 
E) do not change production because aggregate demand and potential GDP will adjust.

Question 19

-

If the money wage rate and the price level both rise by the same proportion, then in the figure above the potential GDP line -------------------- , and the aggregate supply curve -------------------- .

Accepted Answer

A) does not shift; shifts rightward 
B) shifts rightward; does not shift 
C) does not shift; shifts leftward 
D) shifts rightward; shifts leftward 
E) shifts rightward; shifts rightward

Question 20

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve?

Accepted Answer

A) a change in monetary policy 
B) a change in government expenditures on goods and services 
C) a change in expectations about the future 
D) a change in foreign incomes 
E) a change in the price level

Exam 13: Aggregate Supply Ad Aggregate Demand

Which of the following is true?

A fall in the price level brings a_{--------------------} in the real wage rate that_{--------------------} profits which leads to_{--------------------} .

At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately

A demand-pull inflation consists of _{--------------------}shifts in the AD curve and_{--------------------} shifts in the AS curve.

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from _{--------------------}, and the government policy to eliminate this gap will _{--------------------}real GDP and to_{--------------------} the price level.

The aggregate supply curve shifts

A year over year _{--------------------} in the buying power of money means that definitely_{--------------------} from one year to the next.

The _{--------------------}the _{--------------------} is the quantity of real GDP supplied.

If demand pull inflation occurs when the economy is already at potential GDP, then following the Initial increase in aggregate demand, the

All of the following shift the aggregate demand curve to the right EXCEPT

Because there is a_{--------------------} relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is _{--------------------}curve.

A demand-pull inflation initially is characterized by

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve

Which of the following shifts the aggregate supply curve leftward?

Aggregate demand_{--------------------} and shifts the AD curve_{--------------------} when _{--------------------} .

If the money wage rate increases, then the

- In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of

When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms

- If the money wage rate and the price level both rise by the same proportion, then in the figure above the potential GDP line _{--------------------} , and the aggregate supply curve _{--------------------} .

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve?

Exam 13: Aggregate Supply Ad Aggregate Demand

Which of the following is true?

A fall in the price level brings a-------------------- in the real wage rate that-------------------- profits which leads to-------------------- .

At a price level of 100, John has savings equal to $20,000. If the price level increases to 130, the buying power of John's savings is approximately

A demand-pull inflation consists of --------------------shifts in the AD curve and-------------------- shifts in the AS curve.

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from --------------------, and the government policy to eliminate this gap will --------------------real GDP and to-------------------- the price level.

The aggregate supply curve shifts

A year over year -------------------- in the buying power of money means that definitely-------------------- from one year to the next.

The --------------------the -------------------- is the quantity of real GDP supplied.

If demand pull inflation occurs when the economy is already at potential GDP, then following the Initial increase in aggregate demand, the

All of the following shift the aggregate demand curve to the right EXCEPT

Because there is a-------------------- relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is --------------------curve.

A demand-pull inflation initially is characterized by

If people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve

Which of the following shifts the aggregate supply curve leftward?

Aggregate demand-------------------- and shifts the AD curve-------------------- when -------------------- .

If the money wage rate increases, then the

- In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of

When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms

- If the money wage rate and the price level both rise by the same proportion, then in the figure above the potential GDP line -------------------- , and the aggregate supply curve -------------------- .

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve?

A fall in the price level brings a_{--------------------} in the real wage rate that_{--------------------} profits which leads to_{--------------------} .

A demand-pull inflation consists of _{--------------------}shifts in the AD curve and_{--------------------} shifts in the AS curve.

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from _{--------------------}, and the government policy to eliminate this gap will _{--------------------}real GDP and to_{--------------------} the price level.

A year over year _{--------------------} in the buying power of money means that definitely_{--------------------} from one year to the next.

The _{--------------------}the _{--------------------} is the quantity of real GDP supplied.

Because there is a_{--------------------} relationship between the price level and the quantity of real GDP supplied, the aggregate supply curve is _{--------------------}curve.

Aggregate demand_{--------------------} and shifts the AD curve_{--------------------} when _{--------------------} .

- If the money wage rate and the price level both rise by the same proportion, then in the figure above the potential GDP line _{--------------------} , and the aggregate supply curve _{--------------------} .