Question 1

The average percentage markup in the economy

Accepted Answer

A)  is of special interest in microeconomics 
B)  fluctuates greatly from year to year 
C)  depends on competitive conditions in the economy 
D)  depends on the level of GDP 
E)  increases as the interest rate increases

Question 2

An industry's typical percentage markup

Accepted Answer

A)  should be expected to fluctuate wildly from year to year 
B)  equals 1 - (average cost per unit/average revenue per unit) 
C)  is determined by collusion 
D)  is of price concern for the macroeconomy 
E)  is relatively low if there is fierce competition among firms.

Question 3

Which of the following is considered in the AS/AD model but was not considered in the short-run macro model?

Accepted Answer

A)  The effect of price changes. 
B)  The effect of interest rate changes. 
C)  Increases in government spending. 
D)  Monetary policy. 
E)  Decreases in government spending.

Question 4

If the government announces a cut in the capital gains tax and it is expected that investment spending will increase as a result,which of the following are also likely?

Accepted Answer

A)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
B)  A downward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
C)  An upward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a rightward shift of the aggregate demand curve 
D)  A downward shift in the aggregate expenditure line,a leftward shift of the money demand curve,and a leftward shift of the aggregate demand curve 
E)  An upward shift in the aggregate expenditure line,a rightward shift of the money demand curve,and a rightward shift of the aggregate demand curve.

Question 5

If autonomous consumption decreases,which of the following would occur in the short run?

Accepted Answer

A)  a decrease in GDP,a decrease in the price level,a decrease in money demand and a decrease in the interest rate. 
B)  an increase in GDP,an increase in the price level,an increase in money demand and an increase in the interest rate. 
C)  a decrease in GDP,an increase in the price level,an increase in money demand and an increase in the interest rate. 
D)  an increase in GDP,a decrease in the price level,a decrease in money demand and an increase in the interest rate. 
E)  a decrease in GDP,a decrease in the price level,an increase in money demand and an increase in the interest rate.

Question 6

The aggregate supply curve is

Accepted Answer

A)  vertical in the short run 
B)  horizontal in the short run 
C)  the sum of all of the supply curves of individual firms in the economy 
D)  downward sloping in the short run 
E)  upward sloping in the short run

Question 7

If consumers enjoy an increase in wealth due to stock market gains,which of the following combinations of events will mostly likely take place?

Accepted Answer

A)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve 
B)  A downward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
C)  An upward shift of the aggregate expenditure line and a leftward shift of the AD curve. 
D)  An upward shift of the aggregate expenditure line and a rightward shift of the AD curve. 
E)  An upward shift of the aggregate expenditure line and no shift in the AD curve.

Question 8

-In Figure 15-17 above,which of the following most likely represents the long-run aggregate supply curve?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
E)  None of the above.

Question 9

A demand shock

Accepted Answer

A)  is any event that causes the aggregate demand curve to shift 
B)  is usually caused by a change in the price level 
C)  is usually caused by a change in real GDP 
D)  can be traced back to a shift in the economy's production possibilities frontier 
E)  is generally a good thing for the economy

Question 10

If a variable other than the price level changes,the AD curve shifts.

Accepted Answer

A) True 
 B)False

Question 11

The vertical aggregate supply curve is consistent with

Accepted Answer

A)  the classical model 
B)  the short run macro model 
C)  a typical firm's supply curve 
D)  a positive demand shock 
E)  a negative demand shock

Question 12

Stagflation is the combination of

Accepted Answer

A)  falling output and a falling price level 
B)  falling output and rising unemployment 
C)  falling output and a rising price level 
D)  falling output and falling unemployment 
E)  rising unemployment and a falling price level

Question 13

In the short run,the price level

Accepted Answer

A)  will decrease if unit costs and markups both increase throughout the economy 
B)  will remain stable if unit costs increase throughout the economy 
C)  is unimportant in macroeconomics 
D)  will increase if unit costs increase throughout the economy 
E)  is determined by the Fed.

Question 14

If a demand shock causes an economy to operate at a point above potential GDP,then

Accepted Answer

A)  the aggregate supply curve will shift to return the economy to the original point of equilibrium 
B)  the economy will correct itself through rising wages and prices 
C)  this short-run equilibrium point will become the new long-run equilibrium GDP 
D)  the economy will correct itself through falling wage rates and prices 
E)  the shock is said to be a negative demand shock

Question 15

If a war interrupted oil production,which of the following would most likely happen in the short run?

Accepted Answer

A)  Unit costs would decrease and there would be an upward movement along the aggregate supply curve. 
B)  Unit costs would increase and the aggregate supply curve would shift upward. 
C)  Unit costs would increase and the aggregate supply curve would shift downward. 
D)  Unit costs would decrease and the aggregate supply curve would shift upward. 
E)  Unit costs would increase and there would be movement along the aggregate supply curve.

Question 16

If the Fed buys bonds in an open market operation,which of the following is most likely to occur?

Accepted Answer

A)  the equilibrium level of GDP will decrease. 
B)  the money supply will decrease. 
C)  the aggregate demand curve will shift to the right. 
D)  the interest rate will rise. 
E)  the aggregate supply curve will shift to the left.

Question 17

-Refer to Figure 15-6.If the price level is currently at 140,what would we expect to occur in the short run?

Accepted Answer

A)  The price level will remain at 140 and businesses will cut production to $5.5 trillion. 
B)  The price level will remain at 140 and the extra $2 trillion in real GDP will be saved for future use. 
C)  The aggregate supply curve will shift upward until it intersects the aggregate demand curve at a price level of 140 and real GDP of $5.5 trillion. 
D)  The aggregate demand curve will shift right until it intersects the aggregate supply curve at a price level of 140 and real GDP of $7.5 trillion. 
E)  Inventories will accumulate and businesses will cut production until equilibrium is reached at a price level of 120 and real GDP of $6.5 trillion.

Question 18

The AD curve is derived by adding up demand curves for all goods and services.

Accepted Answer

A) True 
 B)False

Question 19

The long-run effect of reducing the government budget deficit would be

Accepted Answer

A)  a higher price level and a lower level of output 
B)  a lower price level and a lower level of output 
C)  a higher price level and a higher level of output 
D)  a higher price level with unchanged output 
E)  a lower price level with unchanged output

Question 20

An increase in output will tend to

Accepted Answer

A)  increase productivity in the economy as a whole 
B)  reduce prices of non-labor inputs and other commodities in limited supply in the short run 
C)  increase real wage rates 
D)  increase nominal wage rates 
E)  decrease the price level.

Exam 15: Aggregate Demand and Aggregate Supply

The average percentage markup in the economy

An industry's typical percentage markup

Which of the following is considered in the AS/AD model but was not considered in the short-run macro model?

If the government announces a cut in the capital gains tax and it is expected that investment spending will increase as a result,which of the following are also likely?

If autonomous consumption decreases,which of the following would occur in the short run?

The aggregate supply curve is

If consumers enjoy an increase in wealth due to stock market gains,which of the following combinations of events will mostly likely take place?

-In Figure 15-17 above,which of the following most likely represents the long-run aggregate supply curve?

A demand shock

If a variable other than the price level changes,the AD curve shifts.

The vertical aggregate supply curve is consistent with

Stagflation is the combination of

In the short run,the price level

If a demand shock causes an economy to operate at a point above potential GDP,then

If a war interrupted oil production,which of the following would most likely happen in the short run?

If the Fed buys bonds in an open market operation,which of the following is most likely to occur?

-Refer to Figure 15-6.If the price level is currently at 140,what would we expect to occur in the short run?

The AD curve is derived by adding up demand curves for all goods and services.

The long-run effect of reducing the government budget deficit would be

An increase in output will tend to