Question 1

What are the effects of a decrease in the price level?

Accepted Answer

A) People hold less money, so they lend less, and the interest rate rises. 
B) People hold less money, so they lend more, and the interest rate falls. 
C) People hold more money, so they lend more, and the interest rate rises. 
D) People hold more money, so they lend less, and the interest rate falls.

Question 2

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,what would we expect to happen?

Accepted Answer

A) The price level and real GDP will both rise. 
B) The price level and real GDP will both fall. 
C) The price level and real GDP will both stay the same. 
D) The price level will increase, and the real GDP will fall.

Question 3

Make a list of things that would shift the aggregate-demand curve to the right.

Accepted Answer

The answer of Make a list of things that would...

Question 4

What does an increase in the interest rate cause?

Accepted Answer

A) It causes investment to rise and the exchange rate to appreciate. 
B) It causes investment to fall and the exchange rate to depreciate. 
C) It causes investment to rise and the exchange rate to depreciate. 
D) It causes investment to fall and the exchange rate to appreciate.

Question 5

What is the effect of technological progress and increases in the money supply on prices in the long run?

Accepted Answer

A) Both make the price level rise. 
B) Both make the price level fall. 
C) Technological progress makes the price level rise, while increases in the money supply make prices fall. 
D) Technological progress makes the price level fall, while increases in the money supply make prices rise.

Question 6

When all prices rise together,there is no change in the overall quantity of goods and services supplied.

Accepted Answer

A) True 
 B)False

Question 7

In which of the following situations would stagflation exist?

Accepted Answer

A) when prices and output rise 
B) when prices rise and output falls 
C) when prices fall and output rises 
D) when prices and output fall

Question 8

Scenario 14-1
The economy is in long-run equilibrium. Suddenly, due to improved international relations and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.
-Refer to the Scenario 14-1.Which of the following are predicted by the aggregate demand and aggregate supply theory?

Accepted Answer

A) The expected inflation falls. Workers bargain for higher increases in wages. 
B) The expected inflation falls. Workers bargain for lower increases in wages. 
C) The expected inflation rises. Workers bargain for higher increases in wages. 
D) The expected inflation rises. Workers bargain for lower increases in wages.

Question 9

When output rises,unemployment falls.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following best explains an increase in consumer spending?

Accepted Answer

A) People spend more when the price level rises because the dollars they hold are worth more. 
B) People spend more when the price level rises because the dollars they hold are worth less. 
C) People spend more when the price level falls because the dollars they hold are worth more. 
D) People spend more when the price level falls because the dollars they hold are worth less.

Question 11

How does real GDP change over time?

Accepted Answer

A) It moves in the same direction as unemployment. 
B) It moves in the same direction as inflation. 
C) It has a long-term upward trend. 
D) It is approximately constant because it is measured in constant dollars.

Question 12

Which recession saw the largest spike in the unemployment rate in Canada?

Accepted Answer

A) late 1970s 
B) early 1980s 
C) early 1990s 
D) late 2000s

Question 13

Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?

Accepted Answer

A) Real GDP will rise, and the price level might rise, fall, or stay the same. 
B) Real GDP will fall, and the price level might rise, fall, or stay the same. 
C) The price level will rise, and real GDP might rise, fall, or stay the same. 
D) The price level will fall, and real GDP might rise, fall, or stay the same.

Question 14

Figure 14-1
 
-Refer to the Figure 14-1.If the economy starts at A and there is a fall in aggregate demand,what happens to the economy in the long run?

Accepted Answer

A) It moves to D and then back to A. 
B) It moves to B and then to C. 
C) It moves to D and then to C. 
D) It moves to B and then back to A.

Question 15

In the aggregate demand and aggregate supply model,when does the aggregate quantity of goods demanded decrease?

Accepted Answer

A) when real wealth increases 
B) when the interest rate falls 
C) when the dollar depreciates 
D) when stock prices fall

Question 16

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,what would we expect to happen in the short run?

Accepted Answer

A) Real GDP will rise, and the price level might rise, fall, or stay the same. 
B) Real GDP will fall, and the price level might rise, fall, or stay the same. 
C) The price level will rise, and real GDP might rise, fall, or stay the same. 
D) The price level will fall, and real GDP might rise, fall, or stay the same.

Question 17

Which of the following shifts aggregate demand to the right?

Accepted Answer

A) a decrease in the money supply 
B) a decrease in net exports at every exchange rate 
C) a decrease in prices 
D) a decrease in taxes

Question 18

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen in the short run?

Accepted Answer

A) Real GDP will rise, and the price level might rise, fall, or stay the same. 
B) Real GDP will fall, and the price level might rise, fall, or stay the same. 
C) The price level will rise, and real GDP might rise, fall, or stay the same. 
D) The price level will fall, and real GDP might rise, fall, or stay the same.

Question 19

Suppose there was an economic contraction caused by a shift in aggregate supply;suppose the central bank changes the money supply to offset the effects of that contraction.How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?

Accepted Answer

A) Aggregate supply would shift to the right. 
B) Aggregate supply would shift to the left. 
C) Aggregate demand would shift to the right. 
D) Aggregate demand would shift to the left.

Question 20

Some economists argue that at low levels of GDP (lower than the long-run level of output),a shift to the right in the aggregate-demand curve increases output without a significant increase in the price levels (without inflation),while at higher levels of output (above the long-run level),a shift in the aggregate-demand significantly increases the price level without much effect on output.How would an aggregate-supply curve look like according to this theory?

Accepted Answer

The answer of Some economists argue that at low levels...

Exam 14: Aggregate Demand and Aggregate Supply

What are the effects of a decrease in the price level?

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,what would we expect to happen?

Make a list of things that would shift the aggregate-demand curve to the right.

What does an increase in the interest rate cause?

What is the effect of technological progress and increases in the money supply on prices in the long run?

When all prices rise together,there is no change in the overall quantity of goods and services supplied.

In which of the following situations would stagflation exist?

When output rises,unemployment falls.

Which of the following best explains an increase in consumer spending?

How does real GDP change over time?

Which recession saw the largest spike in the unemployment rate in Canada?

Suppose the Canadian economy is in long-run equilibrium.Then suppose the value of the Canadian dollar increases.At the same time,people in Canada revise their expectations so that the expected price level falls.What would we expect will happen in the short run?

Figure 14-1 -Refer to the Figure 14-1.If the economy starts at A and there is a fall in aggregate demand,what happens to the economy in the long run?

In the aggregate demand and aggregate supply model,when does the aggregate quantity of goods demanded decrease?

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,what would we expect to happen in the short run?

Which of the following shifts aggregate demand to the right?

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen in the short run?

Suppose there was an economic contraction caused by a shift in aggregate supply;suppose the central bank changes the money supply to offset the effects of that contraction.How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?