Question 1

The AD curve will shift to the right if:

Accepted Answer

A)   people become pessimistic about the future of the economy.
B)   there is a decrease in foreign income.
C)   the government decreases spending.
D)   domestic price levels decrease.
E)   foreign price levels increase. E

Question 2

Other things equal, investment spending will increase when:

Accepted Answer

A)   interest rates are lowered.
B)   firms operate under full capacity.
C)   corporate taxes are increased.
D)   capacity utilization is low.
E)   the cost of capital rises. A

Question 3

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now. However, over the next year, the inflation rate rises 15 percent more than was originally anticipated. As a consequence:

Accepted Answer

A)   the real value of household wealth will increase.
B)   consumption spending will increase, and aggregate demand will rise.
C)   the purchasing power of money will rise.
D)   savings will fall and aggregate expenditures will rise.
E)   the aggregate expenditure in the economy will decrease. E

Question 4

To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:

Accepted Answer

A)   downward-sloping.
B)   vertical.
C)   upward-sloping.
D)   horizontal.
E)   parabolic.

Question 5

Each of the panels given below represents the short-run equilibrium in the U.S. economy. The Aggregate Demand and Aggregate Supply curves in each panel responds to various economic changes.
Figure 8.1
 
-Refer to Figure 8.1. Which of the graphs in the figure best describes the impact of lower real income in Germany on U.S. equilibrium real GDP and the U.S. equilibrium price level?

Accepted Answer

A)   Panel A
B)   Panel B
C)   Panel C
D)   Panel D
E)   Panel E

Question 6

Other things equal, a decrease in government spending:

Accepted Answer

A)   increases the slope of the aggregate demand curve.
B)   increases the domestic interest rate.
C)   decreases aggregate expenditures.
D)   shifts the aggregate demand curve to the right.
E)   increases the equilibrium level of GDP.

Question 7

The fact that the aggregate demand curve slopes downward means that aggregate expenditures increase when the price level decreases.

Accepted Answer

A) True 
 B)False

Question 8

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3

-In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?

Accepted Answer

A)   AS1 to AS2
B)   AD1 to AD2
C)   AD2 to AD1
D)   AD2 toAD3
E)   AS1 to AS3

Question 9

As the level of real GDP increases, the short-run aggregate supply curve:

Accepted Answer

A)   shifts to the right.
B)   shifts to the left.
C)   becomes flatter.
D)   becomes steeper.
E)   becomes horizontal to the real GDP axis.

Question 10

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model.
Figure 8.2
 
-Refer to Figure 8.2. Suppose major oil-exporting countries restrict oil output, thus increasing the price of oil. This would be represented by:

Accepted Answer

A)   a movement from A to C.
B)   a movement from A to B to C.
C)   a movement from B to C.
D)   a movement from B to A.
E)   a movement from C to A.

Question 11

A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

Accepted Answer

A) True 
 B)False

Question 12

Identify the correct statement.

Accepted Answer

A)   Investment is positively related to the interest rate.
B)   Investment spending in an economy is stimulated by new production technology.
C)   Investment is positively related to excess capacity.
D)   Investment spending is positively related to the cost of capital goods.
E)   Investment is negatively related to the rate of government spending.

Question 13

A simultaneous increase in inflation and decrease in economic growth in a country can be associated with:

Accepted Answer

A)   a decrease in aggregate demand with no change in aggregate supply.
B)   an increase in aggregate demand and aggregate supply.
C)   an increase in aggregate supply with no change in aggregate demand.
D)   a decrease in aggregate supply and aggregate demand.
E)   a decrease in aggregate supply with no change in aggregate demand.

Question 14

If a large number of laborers shift from fixed-wage contracts to wages that depend on the cost of living adjustments, the long-run aggregate supply curve for the economy will become relatively steeper.

Accepted Answer

A) True 
 B)False

Question 15

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Accepted Answer

A)   a horizontal line.
B)   an upward-sloping curve.
C)   a downward-sloping curve.
D)   a vertical line.
E)   a backward bending curve.

Question 16

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3
 
-Consider Figure 8.3. Which of the following is most likely to have led to the movement from point B to point E?

Accepted Answer

A)   Declining net exports
B)   Increased investment spending.
C)   A decline in the domestic price level.
D)   An improvement in the quality of labor.
E)   An increase in the real wage rates.

Question 17

A decrease in the price level will result in:

Accepted Answer

A)   a downward shift of the AD curve.
B)   an upward shift of the AD curve.
C)   a movement up the AD curve.
D)   a steeper slope of the AD curve.
E)   a movement down the AD curve

Question 18

The wealth effect and the interest rate effect are changes in the price level that:

Accepted Answer

A)   bring about a movement along the aggregate demand curve.
B)   lead to a shift of the demand curve for a particular good.
C)   result in a shift of the aggregate supply curve.
D)   help explain the vertical shape of the long-run aggregate supply curve.
E)   cause a movement along the aggregate supply curve

Question 19

Which of the following economic changes will decrease household expenditures?

Accepted Answer

A)   Population growth
B)   Lower income taxes
C)   An appreciation of the domestic currency
D)   Increased consumer confidence
E)   A higher domestic price level

Question 20

Business cycles are linked to the interaction between:

Accepted Answer

A)   the foreign exchange rate and the balance of payments account.
B)   the aggregate demand and aggregate supply curves.
C)   the demand and supply curves for a particular good.
D)   the substitution and the wealth effect.
E)   the long-run aggregate supply curve and the aggregate resource curve.

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

The AD curve will shift to the right if:

Other things equal, investment spending will increase when:

Suppose a representative household holds a bond that is expected to pay a real return of $100 one year from now. However, over the next year, the inflation rate rises 15 percent more than was originally anticipated. As a consequence:

To determine short-run equilibrium in the economy, we use an aggregate supply curve that is:

Other things equal, a decrease in government spending:

The fact that the aggregate demand curve slopes downward means that aggregate expenditures increase when the price level decreases.

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation) ?

As the level of real GDP increases, the short-run aggregate supply curve:

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2 -Refer to Figure 8.2. Suppose major oil-exporting countries restrict oil output, thus increasing the price of oil. This would be represented by:

A rightward shift in the aggregate supply curve is generally associated with a reduction in resource prices.

Identify the correct statement.

A simultaneous increase in inflation and decrease in economic growth in a country can be associated with:

If a large number of laborers shift from fixed-wage contracts to wages that depend on the cost of living adjustments, the long-run aggregate supply curve for the economy will become relatively steeper.

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 -Consider Figure 8.3. Which of the following is most likely to have led to the movement from point B to point E?

A decrease in the price level will result in:

The wealth effect and the interest rate effect are changes in the price level that:

Which of the following economic changes will decrease household expenditures?

Business cycles are linked to the interaction between: