Question 1

Suppose a prolonged war in a country destroys 30 percent of the capital stock. In the long run, the price level will ____as_____ .

Accepted Answer

A)  increase; short-run aggregate supply decreases 
B)  decrease; both long-run and short-run aggregate supply decrease 
C)  decrease; long-run aggregate supply decreases 
D)  remain unchanged; long-run aggregate supply decreases 
E)  increase; both long-run and short-run aggregate supply decrease

Question 2

Unemployment rises and real gross domestic product GDP) growth slows during the_____ business cycle.

Accepted Answer

A)  expansion phase of a 
B)  recession phase of a 
C)  entire 
D)  recovery phase of a 
E)  short-run phase of a

Question 3

________would cause a leftward shift of the aggregate demand curve.

Accepted Answer

A)  An increase in real wealth 
B)  An increase in expected income 
C)  A decrease in foreign income 
D)  An increase in the expected price level 
E)  A decrease in the value of the dollar

Question 4

During the latter part of the 1990s, firms purchased new computer systems so that they could establish web sites and eventually online ordering systems. How is this likely to impact the aggregate demand curve and the loanable funds market?

Accepted Answer

The answer of During the latter part of the 1990s,...

Question 5

The aggregate demand curve is best represented by which of the following equations?

Accepted Answer

A)  AD = C + I + G + NX 
B)  AD = C + I + G - NX 
C)  AD = C + I + G 
D)  AD = C + I 
E)  AD = C + I - G - NX

Question 6

The wealth effect is best described as resulting from a(n)

Accepted Answer

A)  increase in the price level, reducing the real value of wealth. 
B)  decrease in the price level, reducing the real value of wealth. 
C)  increase in wealth due to capital gains. 
D)  decrease in wealth due to capital gains. 
E)  increase in disposable income due to a reduction in taxes.

Question 7

When a change in the price level leads to a change in saving, this is known as the_______ effect.

Accepted Answer

A)  wealth 
B)  international trade 
C)  savings 
D)  interest rate 
E)  output

Question 8

What is the difference between a movement along the aggregate demand curve and a shift of the aggregate demand curve? Explain in terms of what causes a movement and what causes a shift.

Accepted Answer

The answer of What is the difference between a movement...

Question 9

Refer to the following figure to answer the next questions.
 
-Based on the figure, an increase in_____ could cause the economy to move from point A to point D.

Accepted Answer

A)  government spending 
B)  taxes 
C)  the price of oil 
D)  imports 
E)  labor productivity

Question 10

Which of the following would cause an upward movement along the aggregate demand curve?

Accepted Answer

A)  There is an increase in expected income. 
B)  An increase in the price level increases the value of real wealth. 
C)  An increase in housing prices increases the value of real wealth. 
D)  The value of the dollar increases. 
E)  There is an increase in the expected price level.

Question 11

If the current short-run equilibrium level of output is greater than full-employment output, we can then expect that in the long run the

Accepted Answer

A)  price level will rise and short-run aggregate supply will fall. 
B)  price level will rise and aggregate demand will fall. 
C)  price level will fall and short-run aggregate supply will rise. 
D)  price level will fall and aggregate demand will rise. 
E)  long-run aggregate supply will increase.

Question 12

The slope of the short-run aggregate supply curve can be explained by

Accepted Answer

A)  the fact that all prices are sticky in the short run. 
B)  sticky input prices and flexible output prices. 
C)  flexible input prices and sticky output prices. 
D)  the fact that all prices are flexible in the short run. 
E)  the fact that all prices except wages are flexible in the short run.

Question 13

A rightward shift of the long-run aggregate supply curve means there has been

Accepted Answer

A)  a decrease in the cyclical unemployment rate. 
B)  an increase in the cyclical unemployment rate. 
C)  an increase in the price level. 
D)  a decrease in the price level. 
E)  economic growth.

Question 14

The long-run aggregate supply curve is

Accepted Answer

A)  vertical at the level of full-employment output. 
B)  horizontal at the going-price level. 
C)  illustrating a positive relationship between price and output. 
D)  illustrating a negative relationship between price and output. 
E)  the same as the short-run aggregate supply curve.

Question 15

______would decrease short-run aggregate supply.

Accepted Answer

A)  A negative supply shock 
B)  Menu costs 
C)  Money illusion 
D)  A technological advance 
E)  A lower than expected price level

Question 16

A new government program reduces the cost of a college education at public universities by 50 percent. In the long run, this can be expected to____ long-run aggregate supply and _________aggregate demand.

Accepted Answer

A)  increase; have no effect on 
B)  decrease; increase 
C)  decrease; decrease 
D)  increase; increase 
E)  have no effect on; have no effect on

Question 17

New computer technologies can be expected to

Accepted Answer

A)  increase long-run aggregate supply. 
B)  increase the price level. 
C)  increase the unemployment rate. 
D)  decrease aggregate demand. 
E)  decrease aggregate supply.

Question 18

When decision makers have time to fully adjust to changes in the overall price level, we refer to this as

Accepted Answer

A)  the short run. 
B)  the long run. 
C)  short-run equilibrium. 
D)  a period of time longer than one year. 
E)  equilibrium.

Question 19

Suppose advances in computer technology lead to a surge in worker productivity. In the long run, output will ______and the price level will_______ .

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  increase; remain unchanged 
D)  decrease; decrease 
E)  remain unchanged; remain unchanged

Question 20

If the price level falls but workers are reluctant to accept a pay cut, this is an example of

Accepted Answer

A)  menu costs. 
B)  money illusion. 
C)  a legally binding contract. 
D)  a supply shock. 
E)  an implicit contract.

Exam 13: The Aggregate Demandaggregate Supply Model

Suppose a prolonged war in a country destroys 30 percent of the capital stock. In the long run, the price level will as_ .