Question 1

Changes in the price level

Accepted Answer

A)  increase the level of aggregate supply in the long run. 
B)  decrease the level of aggregate supply in the long run. 
C)  do not affect the level of aggregate supply in the long run. 
D)  increase the level of aggregate supply in the long run only at very high levels of output.

Question 2

Declines in spending on residential construction are often due to increases in interest rates.The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates.

Accepted Answer

A)  the financial crisis that began in 2007 
B)  the rapid inflation of the early 2000s 
C)  increases in the price of lumber 
D)  rising wages in the construction industry

Question 3

Explain how menu costs affect the slope of the short-run aggregate supply curve.

Accepted Answer

The answer of Explain how menu costs affect the slope...

Question 4

Japanese electronics exports were hurt in 2008 as a result of the recession.How would this decrease in exports have affected Japan's aggregate demand curve?

Accepted Answer

A)  The aggregate demand curve would have shifted to the right. 
B)  The aggregate demand curve would not have shifted, but there would have been a movement up the aggregate demand curve. 
C)  The aggregate demand curve would not have shifted, but there would have been a movement down the aggregate demand curve. 
D)  The aggregate demand curve would have shifted to the left.

Question 5

Figure 15-2
 
-Refer to Figure 15-2.Ceteris paribus,an increase in the labor force would be represented by a movement from

Accepted Answer

A)  SRAS₁ to SRAS₂. 
B)  SRAS₂ to SRAS₁. 
C)  point A to point B. 
D)  point B to point A.

Question 6

The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.

Accepted Answer

A)  short-term 
B)  long-term 
C)  both short-term and long-term 
D)  unrelated

Question 7

German luxury car exports were hurt in 2009 as a result of the recession.How did this decrease in exports affect Germany's aggregate demand curve?

Accepted Answer

A)  The aggregate demand curve shifted to the right. 
B)  The aggregate demand curve did not shift, but there was a movement up the aggregate demand curve. 
C)  The aggregate demand curve did not shift, but there was a movement down the aggregate demand curve. 
D)  The aggregate demand shifted to the left.

Question 8

An increase in the price level causes a movement down the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 9

How do changes in income tax policies affect aggregate demand?

Accepted Answer

A)  Higher taxes increase disposable income, consumption, and aggregate demand. 
B)  Higher taxes reduce disposable income, consumption, and aggregate demand. 
C)  Higher taxes increase corporate investment and aggregate demand. 
D)  Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 10

The long-run adjustment to a negative supply shock results in

Accepted Answer

A)  the short-run aggregate supply curve shifting to the right. 
B)  the price level rising. 
C)  unemployment rising. 
D)  workers being willing to accept higher wages.

Question 11

Figure 15-4
 
-Refer to Figure 15-4.In the figure above,AD₁,LRAS₁ and SRAS₁ denote AD,LRAS and SRAS in year 1,while AD₂,LRAS₂ and SRAS₂ denote AD,LRAS and SRAS in year 2.Given the economy is at point A in year 1,what is the actual growth rate in GDP in year 2?

Accepted Answer

A)  2.5% 
B)  7.3% 
C)  8.0% 
D)  10.0%

Question 12

Suppose the economy is in long-run equilibrium and there is an increase in investment.As a result,real GDP will ________ in the short run,and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease to its initial value 
C)  decrease; decrease further 
D)  decrease; increase to its initial level

Question 13

A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 14

The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

Accepted Answer

A)  monetary policy. 
B)  an automatic mechanism. 
C)  "releasing sticky prices." 
D)  fiscal policy.

Question 15

Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment.Which of the following will happen in the short run?

Accepted Answer

A)  Output will rise. 
B)  Prices will rise. 
C)  Unemployment will rise. 
D)  The aggregate demand curve will shift to the right.

Question 16

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Accepted Answer

The answer of Use the dynamic model of aggregate demand...

Question 17

Figure 15-1
 
-Refer to Figure 15-1.Ceteris paribus,an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from

Accepted Answer

A)  AD₁ to AD₂. 
B)  AD₂ to AD₁. 
C)  point A to point B. 
D)  point B to point A.

Question 18

Figure 15-2
 
-Refer to Figure 15-2.Ceteris paribus,an increase in the price level would be represented by a movement from

Accepted Answer

A)  SRAS₁ to SRAS₂. 
B)  SRAS₂ to SRAS₁. 
C)  point A to point B. 
D)  point B to point A.

Question 19

The recession of 2007-2009 made many consumers pessimistic about their future incomes.How does this increased pessimism affect the aggregate demand curve?

Accepted Answer

A)  This will move the economy up along a stationary aggregate demand curve. 
B)  This will move the economy down along a stationary aggregate demand curve. 
C)  This will shift the aggregate demand curve to the left. 
D)  This will shift the aggregate demand curve to the right.

Question 20

Which of the following models focuses on how productivity shocks explain fluctuations in real GDP?

Accepted Answer

A)  the monetarist model 
B)  the new classical model 
C)  the real business cycle model 
D)  the new Keynesian model

Exam 15: Aggregate Demand and Aggregate Supply Analysis