Question 1

In the long run, why does an increase in the overall price level not lead to an increase in the output of an economy? What does this imply about the shape of the long-run aggregate supply curve?

Accepted Answer

The answer of In the long run, why does an...

Question 2

An increase in the overall price level in the economy leads to all of the following EXCEPT:

Accepted Answer

A)  a decrease in consumption spending. 
B)  a decrease in the interest rate. 
C)  a decrease in its exports. 
D)  an increase in its imports.

Question 3

Which one of the following will decrease aggregate supply, thereby shifting the curve left?

Accepted Answer

A)  Nominal wages decrease as a result of an increased labor supply. 
B)  The productivity of workers decreases as a result of an epidemic. 
C)  A new government policy decreases business taxes. 
D)  The price of oil, which is a major input into most production activities, decreases.

Question 4

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the federal income tax will lead to:

Accepted Answer

A)  an increase in the equilibrium price. 
B)  a decrease in the equilibrium price. 
C)  an increase in the equilibrium output. 
D)  a decrease in equilibrium output.

Question 5

For an economy operating on the long-run aggregate supply curve:

Accepted Answer

A)  frictional unemployment is zero. 
B)  structural unemployment is zero. 
C)  cyclical unemployment is zero. 
D)  the natural rate of unemployment is zero.

Question 6

When all else is equal, if an increase in federal income tax leads to a decrease in equilibrium output and no change in the equilibrium price, then we can conclude that the economy must be operating on the:

Accepted Answer

A)  classical range of the short-run aggregate supply curve. 
B)  Keynesian range of the short-run aggregate supply curve. 
C)  upward-sloping range of the short-run aggregate supply curve. 
D)  long-run aggregate supply curve.

Question 7

If the nominal wage of workers increases by 10% and the real wage of workers remains unchanged, then the overall price level must have:

Accepted Answer

A)  increased by 10%. 
B)  decreased by 10%. 
C)  increased by more than 10%. 
D)  decreased by less than 10%.

Question 8

Suppose that the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve. If government spending increases, then in the short run, the _____ will fall. However, in the long run, the _____ wage will rise.

Accepted Answer

A)  nominal wage; real 
B)  output; real 
C)  real wage; nominal 
D)  price level; nominal

Question 9

The greater the _____ and the smaller the _____, the greater the multiplier effect will be in an economy.

Accepted Answer

A)  MPC; MPS 
B)  MPS; MPC 
C)  tax rate; MPC 
D)  imports; MPC

Question 10

What is the difference between a market demand curve and the aggregate demand curve? In this context, explain why the substitution effect does not apply in the case of an aggregate demand curve.

Accepted Answer

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

Question 11

When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:

Accepted Answer

A)  classical range of the short-run aggregate supply curve. 
B)  Keynesian range of the short-run aggregate supply curve. 
C)  upward-sloping range of the short-run aggregate supply curve. 
D)  long-run aggregate supply curve.

Question 12

If the overall income in an economy increases by $2,000 and consumption spending increases by $1,600 as a result, then the marginal propensity to consume for the economy is:

Accepted Answer

A)  0.2. 
B)  0.4. 
C)  0.6. 
D)  0.8.

Question 13

If the overall price level in the economy is rising and at the same time workers are able to buy more goods and services, then the _____ wage of workers must be _____ the rise in the price level.

Accepted Answer

A)  nominal; falling at faster rate than 
B)  real; falling at a rate faster than 
C)  nominal; rising at a rate faster than 
D)  nominal; rising at the same rate as

Question 14

Use Figure: Macroeconomic Equilibrium. The figure shows four different macroeconomic equilibria for an economy. Which one of the following statements is FALSE about the shift in equilibrium points?
​
Figure: Macroeconomic Equilibrium

Accepted Answer

A)  An increase in the money supply will shift the equilibrium from point A to point B. 
B)  An increase in business taxes will shift the equilibrium from point A to point D. 
C)  An increase in the nominal wage will shift the equilibrium from point D to point A. 
D)  An increase in the federal income tax will shift the equilibrium from point D to point C.

Question 15

The upward-sloping range of the short-run aggregate supply curve results from the stickiness of which of the following variables?

Accepted Answer

A)  nominal wage 
B)  real wage 
C)  nominal interest rate 
D)  price level

Question 16

According to the real wealth effect, a higher _____ implies a _____ value of wealth and consumption spending.

Accepted Answer

A)  interest rate; higher 
B)  price level; higher 
C)  interest rate; lower 
D)  price level; lower

Question 17

China injects $100 into the United States by purchasing new software. If the spending multiplier for the U.S. is 5, then the total increase in spending will be:

Accepted Answer

A)  $10. 
B)  $20. 
C)  $250. 
D)  $500.

Question 18

If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve, then an increase in input prices will lead to _____ in output and _____ in the price level.

Accepted Answer

A)  an increase; an increase 
B)  a decrease; a decrease 
C)  an increase; a decrease 
D)  a decrease; an increase

Question 19

If an economy is going through a severe recession (or depression), then the short-run aggregate supply curve will likely be:

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 20

If the short-run output is less than the potential output, then the:

Accepted Answer

A)  nominal wage will fall in the long run. 
B)  nominal wage will rise in the long run. 
C)  short-aggregate supply curve will shift to the left. 
D)  aggregate demand curve will shift to the left.

Exam 14: Aggregate Demand and Aggregate Supply

In the long run, why does an increase in the overall price level not lead to an increase in the output of an economy? What does this imply about the shape of the long-run aggregate supply curve?

An increase in the overall price level in the economy leads to all of the following EXCEPT:

Which one of the following will decrease aggregate supply, thereby shifting the curve left?

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the federal income tax will lead to:

For an economy operating on the long-run aggregate supply curve:

When all else is equal, if an increase in federal income tax leads to a decrease in equilibrium output and no change in the equilibrium price, then we can conclude that the economy must be operating on the:

If the nominal wage of workers increases by 10% and the real wage of workers remains unchanged, then the overall price level must have:

Suppose that the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve. If government spending increases, then in the short run, the _ will fall. However, in the long run, the _ wage will rise.

The greater the _ and the smaller the _, the greater the multiplier effect will be in an economy.

What is the difference between a market demand curve and the aggregate demand curve? In this context, explain why the substitution effect does not apply in the case of an aggregate demand curve.

When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:

If the overall income in an economy increases by $2,000 and consumption spending increases by $1,600 as a result, then the marginal propensity to consume for the economy is:

If the overall price level in the economy is rising and at the same time workers are able to buy more goods and services, then the _ wage of workers must be _ the rise in the price level.

Use Figure: Macroeconomic Equilibrium. The figure shows four different macroeconomic equilibria for an economy. Which one of the following statements is FALSE about the shift in equilibrium points? Figure: Macroeconomic Equilibrium

The upward-sloping range of the short-run aggregate supply curve results from the stickiness of which of the following variables?

According to the real wealth effect, a higher _ implies a _ value of wealth and consumption spending.

China injects $100 into the United States by purchasing new software. If the spending multiplier for the U.S. is 5, then the total increase in spending will be:

If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve, then an increase in input prices will lead to _ in output and _ in the price level.

If an economy is going through a severe recession (or depression) , then the short-run aggregate supply curve will likely be:

If the short-run output is less than the potential output, then the:

Exam 14: Aggregate Demand and Aggregate Supply

In the long run, why does an increase in the overall price level not lead to an increase in the output of an economy? What does this imply about the shape of the long-run aggregate supply curve?

An increase in the overall price level in the economy leads to all of the following EXCEPT:

Which one of the following will decrease aggregate supply, thereby shifting the curve left?

If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the federal income tax will lead to:

For an economy operating on the long-run aggregate supply curve:

When all else is equal, if an increase in federal income tax leads to a decrease in equilibrium output and no change in the equilibrium price, then we can conclude that the economy must be operating on the:

If the nominal wage of workers increases by 10% and the real wage of workers remains unchanged, then the overall price level must have:

Suppose that the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve. If government spending increases, then in the short run, the _____ will fall. However, in the long run, the _____ wage will rise.

The greater the _____ and the smaller the _____, the greater the multiplier effect will be in an economy.

What is the difference between a market demand curve and the aggregate demand curve? In this context, explain why the substitution effect does not apply in the case of an aggregate demand curve.

When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:

If the overall income in an economy increases by $2,000 and consumption spending increases by $1,600 as a result, then the marginal propensity to consume for the economy is:

If the overall price level in the economy is rising and at the same time workers are able to buy more goods and services, then the _____ wage of workers must be _____ the rise in the price level.

Use Figure: Macroeconomic Equilibrium. The figure shows four different macroeconomic equilibria for an economy. Which one of the following statements is FALSE about the shift in equilibrium points? ​ Figure: Macroeconomic Equilibrium

The upward-sloping range of the short-run aggregate supply curve results from the stickiness of which of the following variables?

According to the real wealth effect, a higher _____ implies a _____ value of wealth and consumption spending.

China injects $100 into the United States by purchasing new software. If the spending multiplier for the U.S. is 5, then the total increase in spending will be:

If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve, then an increase in input prices will lead to _____ in output and _____ in the price level.

If an economy is going through a severe recession (or depression) , then the short-run aggregate supply curve will likely be:

If the short-run output is less than the potential output, then the:

Suppose that the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve. If government spending increases, then in the short run, the _ will fall. However, in the long run, the _ wage will rise.

The greater the _ and the smaller the _, the greater the multiplier effect will be in an economy.

If the overall price level in the economy is rising and at the same time workers are able to buy more goods and services, then the _ wage of workers must be _ the rise in the price level.

Use Figure: Macroeconomic Equilibrium. The figure shows four different macroeconomic equilibria for an economy. Which one of the following statements is FALSE about the shift in equilibrium points? Figure: Macroeconomic Equilibrium

According to the real wealth effect, a higher _ implies a _ value of wealth and consumption spending.

If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve, then an increase in input prices will lead to _ in output and _ in the price level.