Question 1

Potential GDP

Accepted Answer

A) increases as the price level rises. 
B) is the level of real GDP when unemployment is zero. 
C) increases as the quantity of money in the economy increases. 
D) does not vary with the price level. 
E) never changes.

Question 2

Suppose that the E.U. economy goes into an expansion. Canadian real GDP ________ and Canadian unemployment ________ in the short run.

Accepted Answer

A) increases; decreases 
B) increases; increases 
C) decreases; decreases 
D) decreases; increases 
E) does not change; does not change

Question 3

Figure 26.2.1
 
-Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money decreases?

Accepted Answer

A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) Both (b)and (d)

Question 4

Everything else remaining the same, an increase in the interest rate increases saving and

Accepted Answer

A) increases aggregate demand through the international substitution effect. 
B) decreases aggregate demand through the international substitution effect. 
C) increases aggregate demand through the intertemporal substitution effect. 
D) decreases aggregate demand through the intertemporal substitution effect. 
E) increases aggregate demand through the wealth effect.

Question 5

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

Accepted Answer

A) The money wage rate is sticky. 
B) Taxes should be kept low to avoid disincentive effects that decrease potential GDP. 
C) All recessions result from inappropriate monetary policy. 
D) Left alone, the economy rarely operates at full employment. 
E) Provided that the quantity of money is kept on a steady growth path, no active stabilization is needed to offset changes in aggregate demand.

Question 6

All of the following will raise the price level except

Accepted Answer

A) aggregate demand increases and short-run aggregate supply decreases. 
B) aggregate demand increases. 
C) short-run aggregate supply decreases. 
D) an increase in the quantity of capital. 
E) an increase in the quantity of money.

Question 7

Figure 26.3.2
 
-Refer to Figure 26.3.2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is

Accepted Answer

A) 65. 
B) 95. 
C) 70. 
D) 75. 
E) 80.

Question 8

Classical macroeconomists recommend

Accepted Answer

A) policies that actively offset changes in long-run aggregate supply that result in negative economic growth. 
B) an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand. 
C) policies that actively offset changes in aggregate demand that bring recession. 
D) policies that minimize the disincentive effects of taxes on employment, investment, and technological change. 
E) all of the above

Question 9

Figure 26.3.2
 
-Refer to Figure 26.3.2. Consider statements (1)and (2)and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate in the short run.
(2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.

Accepted Answer

A) (1)is true; (2)is false. 
B) (2)is true; (1)is false. 
C) (1)and (2)are false. 
D) (1)and (2)are true. 
E) (1)is false; (2)is true if the LAS curve shifts rightward at the same time.

Question 10

Figure 26.3.3
 
-Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium?

Accepted Answer

A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) both (c)and (d)

Question 11

If real GDP is greater than potential GDP, the economy is

Accepted Answer

A) not in short-run equilibrium. 
B) in a recessionary equilibrium. 
C) in an above full-employment equilibrium. 
D) in a below full-employment equilibrium. 
E) in long-run equilibrium.

Question 12

Table 26.3.3
 
-Refer to Table 26.3.3. With no interference from the central bank or the government, the

Accepted Answer

A) short-run aggregate supply curve will shift rightward. 
B) short-run aggregate supply curve will shift leftward. 
C) long-run aggregate supply curve will shift rightward. 
D) long-run aggregate supply curve will shift leftward. 
E) Both A and C will occur.

Question 13

Figure 26.2.1
 
-Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure decreases?

Accepted Answer

A) (a)only 
B) (b)only 
C) (c)only 
D) (d)only 
E) Both (a)and (d)

Question 14

Figure 26.3.1
 
-Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between ________ real GDP and potential GDP of $________ billion.

Accepted Answer

A) above full-employment equilibrium; 40 
B) above full-employment equilibrium; 20 
C) below full-employment equilibrium; 40 
D) below full-employment equilibrium; 20 
E) full-employment equilibrium; 0

Question 15

Everything else remaining the same, an increase in the expected inflation rate

Accepted Answer

A) shifts the aggregate demand curve rightward. 
B) shifts the aggregate demand curve leftward. 
C) shifts the short-run aggregate supply curve leftward. 
D) shifts the long-run aggregate supply curve rightward. 
E) creates a movement up along the aggregate demand curve.

Question 16

Consider the following events: Event 1: Growth in the world economy slows.
Event 2: The world price of oil rises.
Event 3: Canadian labour productivity declines.
Choose the statement that is correct.

Accepted Answer

A) A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events. 
B) All macroeconomists believe that the economy requires active fiscal policy and monetary policy to keep the economy out of recession. 
C) A classical macroeconomist and a monetarist recommend an increase in the quantity of money for all events. 
D) A Keynesian recommends no action for all of the events. 
E) A Keynesian recommends active fiscal policy but not monetary policy for events 1 and 2 and monetary policy but not fiscal policy for event 3.

Exam 26: Aggregate Supply and Aggregate Demand

Potential GDP

Suppose that the E.U. economy goes into an expansion. Canadian real GDP and Canadian unemployment in the short run.

Figure 26.2.1 -Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money decreases?

Everything else remaining the same, an increase in the interest rate increases saving and

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

All of the following will raise the price level except

Figure 26.3.2 -Refer to Figure 26.3.2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is

Classical macroeconomists recommend

Figure 26.3.2 -Refer to Figure 26.3.2. Consider statements (1) and (2) and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate in the short run. (2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.

Figure 26.3.3 -Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium?

If real GDP is greater than potential GDP, the economy is

Table 26.3.3 -Refer to Table 26.3.3. With no interference from the central bank or the government, the

Figure 26.2.1 -Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure decreases?

Figure 26.3.1 -Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between real GDP and potential GDP of $ billion.

Everything else remaining the same, an increase in the expected inflation rate

Consider the following events: Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: Canadian labour productivity declines. Choose the statement that is correct.

Exam 26: Aggregate Supply and Aggregate Demand

Potential GDP

Suppose that the E.U. economy goes into an expansion. Canadian real GDP ________ and Canadian unemployment ________ in the short run.

Figure 26.2.1 -Refer to Figure 26.2.1. Which graph illustrates what happens when the quantity of money decreases?

Everything else remaining the same, an increase in the interest rate increases saving and

Which of the following statements about the monetarist view of the macroeconomy is incorrect?

All of the following will raise the price level except

Figure 26.3.2 -Refer to Figure 26.3.2. When the economy of Mythlo is in short-run macroeconomic equilibrium, the price level is

Classical macroeconomists recommend

Figure 26.3.2 -Refer to Figure 26.3.2. Consider statements (1) and (2) and select the correct answer. (1) The actual unemployment rate exceeds the natural unemployment rate in the short run. (2) SAS automatically shifts rightward as the economy adjusts to long-run equilibrium.

Figure 26.3.3 -Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium?

If real GDP is greater than potential GDP, the economy is

Table 26.3.3 -Refer to Table 26.3.3. With no interference from the central bank or the government, the

Figure 26.2.1 -Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure decreases?

Figure 26.3.1 -Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between ________ real GDP and potential GDP of $________ billion.

Everything else remaining the same, an increase in the expected inflation rate

Consider the following events: Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: Canadian labour productivity declines. Choose the statement that is correct.

Suppose that the E.U. economy goes into an expansion. Canadian real GDP and Canadian unemployment in the short run.

Figure 26.3.1 -Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between real GDP and potential GDP of $ billion.