Question 1

Beginning from the full-employment level of real GDP,an increase in one of the components of the aggregate demand curve will increase the:

Accepted Answer

A)  average level of prices (CPI). 
B)  unemployment rate. 
C)  natural level of real GDP. 
D)  level of investment spending. 
E)  level of government spending.

Question 2

In an economy where nominal incomes adjust equally to changes in the price level,we would expect the long-run aggregate supply curve to be:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  unit elastic. 
D)  negatively sloped. 
E)  positively sloped.

Question 3

Economic growth is represented by a:

Accepted Answer

A)  rightward shift of the rule of 72 curve. 
B)  movement along a production possibilities curve. 
C)  rightward shift in potential real GDP (LRAS). 
D)  leftward shift of the long-run aggregate supply curve (LRAS).

Question 4

Exhibit 14A-2 Macro AD-AS Model
 
-In Exhibit 14A-2,the intersection of AD with SRAS indicates:

Accepted Answer

A)  a short-run equilibrium. 
B)  a long-run equilibrium. 
C)  that the economy needs policies to reduce unemployment. 
D)  that the economy is at full employment.

Question 5

Economic growth is represented by a:

Accepted Answer

A)  leftward shift of a production possibilities curve. 
B)  rightward shift of the long-run aggregate supply curve (LRAS). 
C)  horizontal long-run aggregate supply curve (LRAS). 
D)  downward shift of an aggregate production function.

Question 6

Which of the following would cause an increase (rightward shift)in the short-run aggregate supply curve (SRAS)?

Accepted Answer

A)  An increase in the long-run aggregate supply curve (LRAS). 
B)  A decrease in the CPI. 
C)  An increase in the CPI. 
D)  A decrease in oil prices.

Question 7

In long-run full-employment equilibrium,which of the following is true?

Accepted Answer

A)  The CPI equals AD equals the peak of the production function curve. 
B)  The horizontal LRAS curve equals the intersection of the demand and supply curves in the labor market. 
C)  The CPI equals the aggregate production function at the equilibrium wage rates. 
D)  The CPI equals AD equals SRAS equals LRAS.

Question 8

A decrease in the aggregate demand curve along the LRAS curve,all other things unchanged,will generate ____ in potential real GDP and ____ in the price level.

Accepted Answer

A)  an increase; no change 
B)  a decrease; no change 
C)  no change; an increase 
D)  no change; a decrease

Question 9

Which of the following causes a leftward shift in the short-run aggregate supply curve?

Accepted Answer

A)  An increase of goods prices while nominal incomes are unchanged. 
B)  An increase in nominal incomes (wages and salaries). 
C)  An increase of full-employment real GDP. 
D)  An increase of personal consumption expenditures while the price level is unchanged. 
E)  An increase of personal consumption expenditures while full-employment real GDP is unchanged.

Question 10

The short-run aggregate supply curve is:

Accepted Answer

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

Question 11

Exhibit 14A-6 Aggregate demand and supply model
 
-As shown in Exhibit 14A-6,and assuming the aggregate demand curve shifts from AD₁ to AD₂,the full-employment level of real GDP is:

Accepted Answer

A)  $10 billion. 
B)  $4 billion. 
C)  $100 billion. 
D)  unable to be determined.

Question 12

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to an increase in the aggregate demand curve would be:

Accepted Answer

A)  a movement upward along the short-run aggregate supply curve. 
B)  a movement upward along the long-run aggregate supply curve. 
C)  a downward shift in the short-run aggregate supply curve. 
D)  a shift in both the aggregate demand curve and the short-run aggregate supply curve with a movement along the long-run aggregate supply curve. 
E)  no change, since the economy is already in equilibrium.

Question 13

Exhibit 14A-4 Macro AD-AS Model
 
-In Exhibit 14A-4,the level of real GDP represented by Yp:

Accepted Answer

A)  would be associated with considerable unemployment. 
B)  indicates that the economy is experiencing zero inflation. 
C)  indicates that the economy is experiencing a recessionary gap. 
D)  is potential real GDP for this economy.

Question 14

As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD₁ and AD₂ ,the full-employment level of real GDP is:

Accepted Answer

A)  $12 billion. 
B)  $8 billion. 
C)  $150 billion. 
D)  unable to be determined.

Question 15

Exhibit 14A-4 Macro AD-AS Model
 
-In Exhibit 14A-4,point P₂,Y₁ represents:

Accepted Answer

A)  that the economy needs policies to reduce unemployment. 
B)  a long-run equilibrium. 
C)  a short-run equilibrium. 
D)  that the economy is at full employment.

Question 16

Along the short-run aggregate supply curve (SRAS),an increase (rightward shift)in the aggregate demand curve will increase:

Accepted Answer

A)  both the price level and real GDP. 
B)  real GDP without raising the price level. 
C)  the price level without affecting real GDP. 
D)  the price level but reduce real GDP.

Question 17

Beginning from full-employment macro equilibrium,increase in government spending will cause real GDP to:

Accepted Answer

A)  increase in the short run. 
B)  decline in the long run. 
C)  decline in the short run. 
D)  increase in the long run.

Question 18

Exhibit 14A-6 Aggregate demand and supply model
 
-Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-6,the real GDP and price level (CPI)in long-run equilibrium will be:

Accepted Answer

A)  $10 billion and 200. 
B)  $4 billion and 150. 
C)  $10 billion and 150. 
D)  $10 billion and 100.

Question 19

Exhibit 14A-5 Macro AD-AS Model
 
-Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-5,the real GDP and price level (CPI)in long-run equilibrium will be:

Accepted Answer

A)  P₂, Y₁. 
B)  P₃, Yp. 
C)  P₂,Yp. 
D)  P₁, Yp.

Question 20

A short-run aggregate supply curve (SRAS)assumes:

Accepted Answer

A)  the CPI is fixed. 
B)  each point on the SRAS is potential real GDP. 
C)  fixed or sticky nominal wages. 
D)  nominal wages vary directly with price changes.

Exam 14: A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Beginning from the full-employment level of real GDP,an increase in one of the components of the aggregate demand curve will increase the:

In an economy where nominal incomes adjust equally to changes in the price level,we would expect the long-run aggregate supply curve to be:

Economic growth is represented by a:

Exhibit 14A-2 Macro AD-AS Model -In Exhibit 14A-2,the intersection of AD with SRAS indicates:

Economic growth is represented by a:

Which of the following would cause an increase (rightward shift) in the short-run aggregate supply curve (SRAS) ?

In long-run full-employment equilibrium,which of the following is true?

A decrease in the aggregate demand curve along the LRAS curve,all other things unchanged,will generate in potential real GDP and in the price level.

Which of the following causes a leftward shift in the short-run aggregate supply curve?

The short-run aggregate supply curve is:

Exhibit 14A-6 Aggregate demand and supply model -As shown in Exhibit 14A-6,and assuming the aggregate demand curve shifts from AD₁ to AD₂,the full-employment level of real GDP is:

Beginning from a position of long-run equilibrium at the full-employment level of real GDP,the economy's short-run response to an increase in the aggregate demand curve would be:

Exhibit 14A-4 Macro AD-AS Model -In Exhibit 14A-4,the level of real GDP represented by Yp:

As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD₁ and AD₂ ,the full-employment level of real GDP is:

Exhibit 14A-4 Macro AD-AS Model -In Exhibit 14A-4,point P₂,Y₁ represents:

Along the short-run aggregate supply curve (SRAS) ,an increase (rightward shift) in the aggregate demand curve will increase:

Beginning from full-employment macro equilibrium,increase in government spending will cause real GDP to:

Exhibit 14A-6 Aggregate demand and supply model -Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-6,the real GDP and price level (CPI) in long-run equilibrium will be:

Exhibit 14A-5 Macro AD-AS Model -Given the shift of the aggregate demand curve from AD₁ to AD₂ in Exhibit 14A-5,the real GDP and price level (CPI) in long-run equilibrium will be:

A short-run aggregate supply curve (SRAS) assumes: