Question 1

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
 
-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 2

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2)
Suppose the economy is initially in short-run equilibrium at point K.If the policy-makers adopt a nonintervention policy, over time,
I.real wages will fall as long as unemployment remains above the natural rate.
II.lower nominal wages will result in a gradual shift from SRAS2 to SRAS1.
III.long-run equilibrium will be established at YP and Ph.

Accepted Answer

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

Question 3

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2)
A shift from SRAS1 to SRAS2 could have been caused by all of the following except

Accepted Answer

A) an increase in the consumer confidence index. 
B) an increase in payroll tax. 
C) a rise in health care costs which raises the cost of employing labor. 
D) terrorist attacks that destroys an economy's infrastructure.

Question 4

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 5

Use the following to answer questions 
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
 
-The aggregate demand curve shifts due to changes in consumption expenditures, investment expenditures, government purchases, or net exports.

Accepted Answer

A) True 
 B)False

Question 6

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1)
Suppose the economy is initially at point A.Now suppose an increase in government purchases shifts the aggregate demand curve to AD2.What happens in the new short run?

Accepted Answer

A) Firms increase output because product prices rise while real wage falls. 
B) Firms increase output because product prices and real wage rise. 
C) Firms will have to pay higher nominal wages and employ more workers to supply the increased output. 
D) The price level increases to Pb, real wages, nominal wages, and employment increase.

Question 7

The long-run aggregate supply curve

Accepted Answer

A) relates the level of nominal output produced by firms to the implicit price deflator. 
B) relates the level of output produced by firms to the price level in the long run. 
C) is vertical because there is one price level and an infinite number of outputs. 
D) is determined by the real output demanded by economic agents in an economy.

Question 8

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1)
Suppose the economy is initially at point A.Now suppose an increase in government purchases shifts the aggregate demand curve to AD2.As a result,

Accepted Answer

A) the economy is not in equilibrium because it operates with an output gap. 
B) the economy is in short-run equilibrium and it operates with an inflationary gap. 
C) the economy is in short-run equilibrium and it operates with a recessionary gap. 
D) the economy is not in equilibrium because the unemployment rate is not equal to the natural rate of unemployment.

Question 9

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

Accepted Answer

A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 
C) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
D) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.

Question 10

Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level.What is the value of the multiplier?

Accepted Answer

A) 2.5 
B) 3.5 
C) 0.285 
D) $250 million

Question 11

The intersection of the economy's aggregate demand and long-run aggregate supply curves
I.determines its equilibrium real GDP in both the long run and the short run.
II.determines its equilibrium price level in both the long run and the short run.
III.occurs at the economy's potential output.

Accepted Answer

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

Question 12

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to an increase in the price level and real GDP in the short run?

Accepted Answer

A) A decrease in health insurance premiums paid by firms raises the cost of employing labor 
B) An increase in government transfer payments 
C) An increase in the cost of a key input such as oil 
D) A sharp fall in stock market prices

Question 13

As a recessionary gap is eliminated through an economy's self-correcting adjustments process,

Accepted Answer

A) the equilibrium price level increases and the equilibrium real output decreases. 
B) the equilibrium price level decreases and the equilibrium real output increases. 
C) the equilibrium price level and the equilibrium real output increase. 
D) the equilibrium price level and the equilibrium real output decrease.

Question 14

Use the following to answer questions 
Exhibit: The Aggregate Demand/Aggregate Supply Model 1 
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 1)
What are the prevailing price level and the output level in the economy?

Accepted Answer

A) Price level = P1; real GDP = Yp 
B) Price level = P1; real GDP = Y1 
C) Price level = P2; real GDP = Y2 
D) Price level = P3; real GDP = Yp

Question 15

In the long run, the output level is determined by

Accepted Answer

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

Question 16

Use the following to answer questions 
Exhibit: The Aggregate Demand/Aggregate Supply Model 2 
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2)
Which of the following statements is true?

Accepted Answer

A) The economy depicted in the figure experiences an inflationary gap = Y2 -Yp. 
B) The economy depicted in the figure experiences an inflationary gap = Y1 -Yp. 
C) The economy depicted in the figure experiences an inflationary gap = Y1-Y2. 
D) The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.

Question 17

Suppose net exports decreases by $100 million due to a slump in foreign economies.If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

Accepted Answer

A) Since less will be produced, the aggregate demand does not shift.The aggregate supply curve shifts to the left by $100 million at each price level. 
B) It shifts to the left by $50 million at each price level. 
C) It shifts to the left by $100 million at each price level. 
D) It shifts to the left by $200 million at each price level.

Question 18

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Accepted Answer

A) increase and potential output to increase. 
B) decrease and potential output to decrease. 
C) increase and potential output to remain stable. 
D) decrease and potential output to remain stable.

Question 19

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

Accepted Answer

A) a decrease in net exports which will shift the aggregate demand curve to the right. 
B) an increase in net exports which will shift the aggregate demand curve to the right. 
C) a decrease in net exports which will shift the aggregate supply curve to the left. 
D) an increase in net exports which will shift the aggregate supply curve to the right.

Question 20

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

Accepted Answer

A) 5% 
B) 10% 
C) 30% 
D) 50%

Exam 7: Aggregate Demand and Aggregate Supply

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The short-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS₁ to SRAS₂ could have been caused by all of the following except

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

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The aggregate demand curve shifts due to changes in consumption expenditures, investment expenditures, government purchases, or net exports.

The long-run aggregate supply curve

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level.What is the value of the multiplier?

The intersection of the economy's aggregate demand and long-run aggregate supply curves I.determines its equilibrium real GDP in both the long run and the short run. II.determines its equilibrium price level in both the long run and the short run. III.occurs at the economy's potential output.

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to an increase in the price level and real GDP in the short run?

As a recessionary gap is eliminated through an economy's self-correcting adjustments process,

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 1) What are the prevailing price level and the output level in the economy?

In the long run, the output level is determined by

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

Suppose net exports decreases by $100 million due to a slump in foreign economies.If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

Exam 7: Aggregate Demand and Aggregate Supply

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The short-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS1 to SRAS2 could have been caused by all of the following except

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

Use the following to answer questions Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels -The aggregate demand curve shifts due to changes in consumption expenditures, investment expenditures, government purchases, or net exports.

The long-run aggregate supply curve

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level.What is the value of the multiplier?

The intersection of the economy's aggregate demand and long-run aggregate supply curves I.determines its equilibrium real GDP in both the long run and the short run. II.determines its equilibrium price level in both the long run and the short run. III.occurs at the economy's potential output.

Suppose the economy is initially in long-run equilibrium.Which of the following events leads to an increase in the price level and real GDP in the short run?

As a recessionary gap is eliminated through an economy's self-correcting adjustments process,

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 1) What are the prevailing price level and the output level in the economy?

In the long run, the output level is determined by

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

Suppose net exports decreases by $100 million due to a slump in foreign economies.If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

When the Great Depression reached its trough in 1933, real GDP had fallen by ________ since the depression began in 1929.

Use the following to answer questions Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) A shift from SRAS₁ to SRAS₂ could have been caused by all of the following except