Question 1

Other things held constant, when the general price level changes:

Accepted Answer

A)  we move along the aggregate demand curve. 
B)  we shift the aggregate demand curve to the right. 
C)  we shift the aggregate demand curve to the left. 
D)  we shift the aggregate supply curve to the right.

Question 2

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 3

If there is a sudden jump in the inflation rate, the purchasing power of financial assets will immediately fall.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Suppose in Country X, anticipating high inflation in the economy, wages of workers are increased in the beginning of a financial year. However, prices remain unchanged during the year. Everything else remaining constant, which of the following will be observed in this economy?

Accepted Answer

A)  The cost of labor, that is the real wage will decline 
B)  The current profits of the firm will rise 
C)  Aggregate supply in the economy will increase 
D)  Annual production in the economy will remain unaffected 
E)  The aggregate supply curve will move to the left

Question 6

Which of the following is true of the aggregate supply curve?

Accepted Answer

A)  It shows the inverse relationship between prices and national output. 
B)  It shows the positive relationship between the price level and the supply of all goods produced in the economy. 
C)  It shows the amount of real GDP consumed at different price levels. 
D)  It is a negatively sloped curve that shows the relationship between the price level and the cost of production of firms in the economy. 
E)  It shows the positive relationship between price and quantity supplied of an individual good.

Question 7

Which of the following is not a component of the aggregate expenditures of a country?

Accepted Answer

A)  Investment 
B)  Government spending 
C)  Net exports 
D)  Consumption 
E)  Transfer payments

Question 8

The long-run aggregate supply increases as:

Accepted Answer

A)  new production technology is introduced. 
B)  the quality of labor declines. 
C)  the average price level increases. 
D)  natural resources become depleted. 
E)  the minimum wage rate increases.

Question 9

The movement of the vertical _____ curve to the _____ reflects the increase in potential output on account of the development of new technologies, and increase in the quantity and quality of resources.

Accepted Answer

A)  long-run aggregate supply; right 
B)  short-run aggregate supply; right 
C)  short-run aggregate demand; left 
D)  long-run aggregate demand curve; left 
E)  long-run aggregate supply; left

Question 10

The steepness of the aggregate supply curve depends on the:

Accepted Answer

A)  rate of inflation in the economy. 
B)  change in relative prices of commodities. 
C)  substitutability of the inputs used in producing various goods and services. 
D)  ability of the producers to respond to price-level changes in the short run. 
E)  the market rate of interest.

Question 11

Which of the following would result in a decrease in aggregate demand?

Accepted Answer

A)  A higher domestic price level 
B)  Higher raw materials prices 
C)  Higher rates of tax 
D)  Technological advances 
E)  Expansionary government policy

Question 12

The positive slope of the AS curve is a _____ phenomena, when the _____ are held constant.

Accepted Answer

A)  long-run; business profits 
B)  short-run; government expenditures 
C)  short-run; costs of production 
D)  long-run; commodity prices 
E)  long-run; aggregate expenditures

Question 13

The steeper the slope of the aggregate supply curve in the long run indicates that an increase in aggregate demand will cause an increase in the price level and an even greater increase in output in the long run.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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.

Question 16

The wealth effect of a change in the price level refers to the fact that wealthier individuals tend to spend more on foreign goods.

Accepted Answer

A) True 
 B)False

Question 17

Increased household spending reduces aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 18

The economic reasons that underlie the shape of the aggregate supply curve are different from those that underlie the shape of the supply curve for a particular good.

Accepted Answer

A) True 
 B)False

Question 19

The table given below reports the inflation rate in the U.S. and Canada for two years.
 
-Refer to Table 8.1. Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars) = 1 USD (United States dollars). Between year 1 and year 2, what happens to the U.S. aggregate demand curve?

Accepted Answer

A)  There is a movement to the right along the AD curve. 
B)  The AD curve shifts to the right. 
C)  The AD curve becomes relatively elastic. 
D)  The AD curve shifts to the left. 
E)  There is a movement to the left along the AD curve.

Question 20

Which of the following is most likely to lead to an inward shift of the aggregate demand curve?

Accepted Answer

A)  A decrease in the prices of raw materials 
B)  A decline in foreign price levels 
C)  A decline in the domestic price level 
D)  An optimistic expectation about the economy's performance in the near future 
E)  A decrease in foreign income

Exam 8: Macroeconomic Equilibrium: Aggregate Demand and Supply

Other things held constant, when the general price level changes:

If there is a sudden jump in the inflation rate, the purchasing power of financial assets will immediately fall.

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.

Suppose in Country X, anticipating high inflation in the economy, wages of workers are increased in the beginning of a financial year. However, prices remain unchanged during the year. Everything else remaining constant, which of the following will be observed in this economy?

Which of the following is true of the aggregate supply curve?

Which of the following is not a component of the aggregate expenditures of a country?

The long-run aggregate supply increases as:

The movement of the vertical _ curve to the _ reflects the increase in potential output on account of the development of new technologies, and increase in the quantity and quality of resources.

The steepness of the aggregate supply curve depends on the:

Which of the following would result in a decrease in aggregate demand?

The positive slope of the AS curve is a _ phenomena, when the _ are held constant.

The steeper the slope of the aggregate supply curve in the long run indicates that an increase in aggregate demand will cause an increase in the price level and an even greater increase in output in the long run.

Which of the following economic changes will decrease household expenditures?

Other things equal, investment spending will increase when:

The wealth effect of a change in the price level refers to the fact that wealthier individuals tend to spend more on foreign goods.

Increased household spending reduces aggregate expenditures.

The economic reasons that underlie the shape of the aggregate supply curve are different from those that underlie the shape of the supply curve for a particular good.

The table given below reports the inflation rate in the U.S. and Canada for two years. -Refer to Table 8.1. Assume the exchange rate is fixed at 1.4 CAD (Canadian dollars) = 1 USD (United States dollars) . Between year 1 and year 2, what happens to the U.S. aggregate demand curve?

Which of the following is most likely to lead to an inward shift of the aggregate demand curve?