Question 1

-In the figure above,the shift in the aggregate demand curve from AD₁ to AD₃ could be the result of

Accepted Answer

A) a fall in the price level. 
B) a tax cut. 
C) an increased expectation of a recession that lowers people's expected future incomes. 
D) a rise in the price level. 
E) a decrease in the foreign exchange rate.

Question 2

If the costs of production decrease,there is

Accepted Answer

A) an increase in the quantity of real GDP supplied and a movement up along the AS curve. 
B) an increase in aggregate supply and the AS curve shifts rightward. 
C) a decrease in the quantity of real GDP supplied and a movement down along the AS curve. 
D) an increase in aggregate supply and the AS curve shifts leftward. 
E) a decrease in aggregate supply and the AS curve shifts leftward.

Question 3

In the short run,a rise in the price level brings a ________ in the real interest rate that ________ investment,bringing ________ in the quantity of real GDP demanded.

Accepted Answer

A) rise;decreases;an increase 
B) fall;decreases ;a decrease 
C) rise;decreases;a decrease 
D) fall;increases ;an increase 
E) rise;increases ;an increase

Question 4

The aggregate demand multiplier effect says that an initial increase in expenditure plans leads to an induced

Accepted Answer

A) increase in production expenditure. 
B) increase in exports. 
C) increase in consumption expenditure. 
D) decrease in the price level. 
E) increase in government expenditures on goods and services.

Question 5

The aggregate supply curve shifts rightward when

Accepted Answer

A) the money wage rate falls. 
B) government purchases increase. 
C) potential GDP decreases. 
D) the money wage rate rises. 
E) income taxes increase.

Question 6

At a peak in the business cycle,the macroeconomic equilibrium is ________ the level of potential real GDP.

Accepted Answer

A) greater than 
B) less than 
C) equal to 
D) falling below 
E) None of the above answers is always correct because the relationship depends on whether the previous phase of the business cycle had been a recession or an expansion.

Question 7

Cost-push inflation starts with

Accepted Answer

A) an increase in potential GDP. 
B) a decrease in aggregate supply. 
C) an increase in aggregate supply. 
D) an increase in aggregate demand. 
E) a decrease in aggregate demand.

Question 8

If the price level doubles,it will

Accepted Answer

A) increase potential GDP. 
B) decrease potential GDP. 
C) increase the quantity of money. 
D) decrease the buying power of money. 
E) have no effect on the buying power of money.

Question 9

Which of the following decreases aggregate demand and shifts the AD curve leftward?

Accepted Answer

A) A tax cut 
B) An increase in government expenditures on goods and services 
C) A decrease in potential GDP 
D) The Reserve Bank increasing the interest rate 
E) An increase in the quantity of money

Question 10

Which of the following is true?

Accepted Answer

A) Aggregate supply is another name for potential GDP. 
B) Potential GDP increases as the price level increases. 
C) The potential GDP line has a negative slope. 
D) At full employment,aggregate supply is equal to potential GDP. 
E) Potential GDP decreases as the price level increases.

Question 11

Which of the following statements is correct?

Accepted Answer

A) An increase in exports shifts the aggregate demand curve leftward. 
B) A tax increase shifts the aggregate demand curve leftward. 
C) The higher the price level,the larger is the quantity of real GDP demanded. 
D) An increase in potential GDP shifts the aggregate demand curve rightward. 
E) An increase in people's expected future income shifts the aggregate demand curve leftward.

Question 12

-If the money wage rate and the price level both rise by the same proportion,then,in the figure above,the potential GDP line ________,and the aggregate supply curve ________.

Accepted Answer

A) shifts rightward;does not shift 
B) shifts rightward;shifts leftward 
C) shifts rightward;shifts rightward 
D) does not shift;shifts rightward 
E) does not shift;shifts leftward

Question 13

Suppose that the money prices of raw materials increase so that short-run aggregate supply decreases.If the Reserve Bank does NOT respond,the higher money price of raw materials will i.repeatedly shift the aggregate demand curve rightward and raise the price level.
Ii)shift the aggregate demand curve rightward and the aggregate supply curve leftward,raising prices.
Iii)result initially in lower employment and a higher price level.

Accepted Answer

A) iii only 
B) i and iii 
C) i and ii 
D) ii and iii 
E) i only

Question 14

If the equilibrium price level is 135 but the actual price level is 150,then

Accepted Answer

A) the quantity of real GDP demanded is greater than the quantity of real GDP supplied. 
B) the quantity of real GDP demanded is less than the quantity of real GDP supplied. 
C) aggregate demand will increase to restore equilibrium. 
D) firms increase their production because they are able to sell their output at a higher than expected price. 
E) aggregate demand will decrease to restore equilibrium.

Question 15

The main sources of cost-push inflation are increases in

Accepted Answer

A) the real wage rate and the price of raw materials. 
B) the quantity of money and the real wage rate. 
C) the money wage rate and aggregate demand. 
D) government expenditure and the quantity of money. 
E) the money wage rate and the price of raw materials.

Question 16

In the short-run,an increase in the price of raw materials will ________ the price level and ________ real GDP.

Accepted Answer

A) raise;increase 
B) lower;increase 
C) raise;decrease 
D) raise;not change 
E) lower;decrease

Question 17

All of the following shift the aggregate demand curve to the right EXCEPT

Accepted Answer

A) an increase in taxes. 
B) an increase in expected future profit. 
C) an expansion of the global economy. 
D) an increase in government expenditure. 
E) an increase in foreign income.

Question 18

A technological advance ________ potential GDP,________ aggregate supply,and shifts the aggregate supply curve ________.

Accepted Answer

A) increases;increases;leftward 
B) increases;increases;rightward 
C) decreases;decreases;leftward 
D) increases;decreases;leftward 
E) decreases;increases;rightward

Question 19

Suppose the price level rises leading to a decrease in the real wage and increasing employment and real GDP.Which of the following are ways in which this occurs?
i.Firms employ more labour and increase output.
ii.Firms shut down.
iii.Firms start up a new business.

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) i,ii and iii

Question 20

In a demand-pull inflation,if the Reserve Bank stops expanding the quantity of money,

Accepted Answer

A) a cost-push inflation will occur. 
B) a deflation will occur. 
C) the demand-pull inflation ends. 
D) government expenditure will cause the demand-pull inflation to continue. 
E) None of the above answers is correct.

Exam 11: Aggregate Supply and Aggregate Demand