Question 1

A fall in the price level produces a ________ the aggregate demand curve

Accepted Answer

A)  movement upward along 
B)  rightward shift of 
C)  movement downward along 
D)  change in the slope of 
E)  leftward shift of

Question 2

Which of the following shifts the aggregate demand curve rightward?

Accepted Answer

A)  A tax cut 
B)  A decrease in expected future income 
C)  A decrease in government expenditures on goods and services 
D)  A decrease in the price level 
E)  A decrease in the quantity of money

Question 3

An economy experiences a recessionary gap. As the economy adjusts to full employment, the money wage rate

Accepted Answer

A)  rises, shifting the aggregate demand curve rightward. 
B)  falls, shifting the aggregate demand curve leftward. 
C)  falls, increasing potential GDP. 
D)  falls, shifting the aggregate supply curve rightward. 
E)  rises, shifting the aggregate supply curve leftward.

Question 4

If the equilibrium price level is 135 but the actual price level is 120, then

Accepted Answer

A)  the quantity of real GDP demanded is less than the quantity of real GDP supplied. 
B)  aggregate demand will decrease to restore equilibrium. 
C)  aggregate demand will increase to restore equilibrium. 
D)  firms decrease their production because they cannot sell the output they produce. 
E)  the quantity of real GDP demanded is greater than the quantity of real GDP supplied.

Question 5

Suppose the exchange rate in the year 2017 was 5 yuan per dollar and in 2018 the exchange rate fell to 4 yuan per dollar. If the price of a Chinese jumper was 120 yuan in both years, the new dollar price in 2018 would be ________ and imports of Chinese jumpers would ________.

Accepted Answer

A)  $40; decrease 
B)  $40; stay the same because the price stayed the same at 120 yuan 
C)  $30; increase 
D)  $40; increase 
E)  $30; decrease

Question 6

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

Question 7

When the price level increases there is ________ movement along the aggregate demand curve because the buying power of money ________.

Accepted Answer

A)  a downward; increases 
B)  an upward; decreases 
C)  an upward; increases 
D)  a downward; decreases 
E)  no; does not change

Question 8

If profits are high because the price level rose,

Accepted Answer

A)  potential GDP must be decreasing. 
B)  it is likely the result of an increase in the real wage rate. 
C)  business failures rise and the quantity of real GDP supplied increases. 
D)  new businesses open and the quantity of real GDP supplied increases. 
E)  the AS curve shifts leftward.

Question 9

If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP less than potential GDP, there is

Accepted Answer

A)  an inflationary gap. 
B)  falling real GDP. 
C)  an above full-employment equilibrium. 
D)  a recessionary gap. 
E)  a rising price level.

Question 10

An economy is at a full-employment equilibrium, and then the aggregate demand curve shifts leftward. As a result, the price level ________ and real GDP ________.

Accepted Answer

A)  falls; increases 
B)  falls; does not change 
C)  falls; decreases 
D)  rises; decreases 
E)  rises; increases

Question 11

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

Accepted Answer

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

Question 12

If the price level falls and the money wage rate does not change, some firms ________ and there is ________.

Accepted Answer

A)  shut down; a leftward shift of the aggregate supply curve 
B)  shut down; a decrease in potential GDP 
C)  start up; a rightward shift of the aggregate supply curve 
D)  shut down; a decrease in the quantity of real GDP supplied 
E)  start up; an increase in potential GDP

Question 13

The line showing potential GDP is a vertical straight line because

Accepted Answer

A)  economists are unsure about how to determine potential GDP. 
B)  it represents the minimum level of real GDP in a recession. 
C)  when nothing else changes, a higher price level has no effect on real GDP. 
D)  there is only one level of full employment at any point in time. 
E)  the aggregate supply curve is upward sloping.

Question 14

If the price of widgets is $2 and the real wage is $20 per hour then the firm must sell 10 widgets to cover the cost of an hour of labour. If the price of widgets rises to $4, how many widgets must the firms sell to cover the cost of an hour of labour?

Accepted Answer

A)  15 
B)  5 
C)  12 
D)  10 
E)  20

Question 15

Over the business cycle, factors such as the quantity of capital, human capital and technology

Accepted Answer

A)  change drastically, fluctuating more than the quantity of labour employed. 
B)  grow but do not fluctuate as much as the quantity of labour employed. 
C)  do not grow and are therefore not the source of economic growth. 
D)  fluctuate about the same amount as the quantity of labour employed. 
E)  change randomly, sometimes growing, sometimes falling.

Question 16

According to the AS-AD model,

Accepted Answer

A)  the AS curve is always equal to potential GDP. 
B)  the equilibrium is where the AS curve crosses the AD curve, but the amount of real GDP at this point is not always equal to potential GDP. 
C)  a change in the amount of potential GDP is the only factor that shifts both the aggregate supply curve and the aggregate demand curve. 
D)  the aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation. 
E)  the aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment.

Question 17

-The aggregate demand curve in the figure above shifts rightward if

Accepted Answer

A)  taxes are raised. 
B)  potential GDP increases. 
C)  government expenditure increases. 
D)  the money wage rate falls. 
E)  the Reserve Bank raises the interest rate.

Question 18

A rise in the price level

Accepted Answer

A)  decreases the quantity of real GDP demanded. 
B)  decreases aggregate demand. 
C)  has no effect on aggregate demand or on the quantity of real GDP demanded. 
D)  increases aggregate demand. 
E)  increases the quantity of real GDP demanded.

Question 19

A technological advance ________ aggregate supply, shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle.

Accepted Answer

A)  increases; rightward; expansion 
B)  increases; leftward; expansion 
C)  increases; rightward; recession 
D)  decreases; leftward recession 
E)  decreases; rightward; expansion

Question 20

If investment spending increases by $1 million, then the aggregate demand curve shifts

Accepted Answer

A)  leftward by less than $1 million. 
B)  rightward by $1 million. 
C)  rightward by less than $1 million. 
D)  rightward by more than $1 million. 
E)  leftward by more than $1 million.

Exam 11: Aggregate Supply and Aggregate Demand