Question 1

In the dynamic aggregated demand and aggregate supply model,inflation occurs if

Accepted Answer

A)  the AD curve shifts more to the right than the LRAS curve. 
B)  the SRAS curve shifts more to the right than the AD curve. 
C)  the AD curve shifts to the left and the SRAS curve shifts to the right. 
D)  the AD curve shifts to the left and the LRAS curve shifts to the right.

Question 2

In 2005,Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas,gasoline,and heating oil prices.Three years later,once the refining capacity was restored,these prices came back down.The restoration of refining capacity should

Accepted Answer

A)  shift the short-run aggregate supply curve to the left. 
B)  shift the short-run aggregate supply curve to the right. 
C)  move the economy up along a stationary short-run aggregate supply curve. 
D)  move the economy down along a stationary short-run aggregate supply curve.

Question 3

An increase in investment causes the price level to ________ in the short run and ________ in the long run.

Accepted Answer

A)  increase; increase further 
B)  increase; decrease 
C)  decrease; decrease further 
D)  decrease; increase

Question 4

Lower personal income taxes

Accepted Answer

A)  increase aggregate demand. 
B)  decrease disposable income. 
C)  decrease aggregate demand. 
D)  increase transfer payments.

Question 5

The long-run aggregate supply curve shows the relationship between

Accepted Answer

A)  short-run aggregate supply and short-run aggregate demand. 
B)  the price level and quantity of real GDP supplied. 
C)  the real interest rate and the nominal interest rate. 
D)  the quantity of real GDP supplied and the quantity of nominal GDP supplied.

Question 6

The basic aggregate demand and aggregate supply curve model helps explain

Accepted Answer

A)  short-term fluctuations in real GDP and the price level. 
B)  long-term growth. 
C)  price fluctuations in an individual market. 
D)  output fluctuations in an individual market.

Question 7

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A)  raises; recession; lowers; expansion 
B)  raises; expansion raises; recession 
C)  lowers; expansion; lowers; recession 
D)  lowers; recession; raises; expansion

Question 8

In the long run

Accepted Answer

A)  GDP > potential GDP. 
B)  unemployment is at its natural rate. 
C)  LRAS and SRAS lie on the same line. 
D)  the inflation rate is zero.

Question 9

Explain how each of the following events would affect the long-run aggregate supply curve.
a.A lower price level
b.A decrease in the labor force
c.A decrease in the quantity of capital goods
d.Technological change

Accepted Answer

The answer of Explain how each of the following events...

Question 10

Potential GDP refers to the level of

Accepted Answer

A)  real GDP in the long run. 
B)  nominal GDP in the long run. 
C)  real GDP in the short run. 
D)  nominal GDP in the short run.

Question 11

Figure 15-1
 
-Refer to Figure 15-1.Ceteris paribus,a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S.exports increasing faster than U.S.imports.This 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 12

When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing,a housing bubble occurred.

Accepted Answer

A)  less; less 
B)  less; more 
C)  more; less 
D)  more; more

Question 13

The level of long-run aggregate supply is affected by all of the following except

Accepted Answer

A)  changes in the price level. 
B)  changes in the technology. 
C)  changes in the capital stock. 
D)  changes in the number of workers.

Question 14

Figure 15-4
 
-Refer to Figure 15-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

Accepted Answer

A)  0.9% 
B)  1.8% 
C)  2.7% 
D)  3.0%

Question 15

Figure 15-3
 
-Refer to Figure 15-3.Suppose the economy is at point C.If government spending decreases in the economy,where will the eventual long-run equilibrium be?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 16

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do the short-run supply curve?

Accepted Answer

A)  It shifted the short-run aggregate supply curve to the left. 
B)  It shifted the short-run aggregate supply curve to the right. 
C)  It moved the economy up along a stationary short-run aggregate supply curve. 
D)  It moved the economy down along a stationary short-run aggregate supply curve.

Question 17

Figure 15-1
 
-Refer to Figure 15-1.Ceteris paribus,an increase in firms' expectations of the future profitability of investment spending 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

Suppose the U.S.GDP growth rate is slower relative to other countries' GDP growth rates.This will

Accepted Answer

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

Question 19

Workers and firms both expect that prices will be 2.5% higher next year than they are this year.As a result

Accepted Answer

A)  workers will be willing to take lower wages next year, but not lower than a 2.5 percent decrease. 
B)  the purchasing power of wages will rise if wages increase by 2.5%. 
C)  the short-run aggregate supply curve will shift to the left as wages increase. 
D)  aggregate demand will increase by 2.5%.

Question 20

Figure 15-4
 
-Refer to Figure 15-4.Given the economy is at point A in year 1,what will happen to the unemployment rate in year 2?

Accepted Answer

A)  It will rise. 
B)  It will fall. 
C)  It will remain constant. 
D)  not enough information to answer the question

Exam 15: Aggregate Demand and Aggregate Supply Analysis

In the dynamic aggregated demand and aggregate supply model,inflation occurs if

In 2005,Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas,gasoline,and heating oil prices.Three years later,once the refining capacity was restored,these prices came back down.The restoration of refining capacity should

An increase in investment causes the price level to in the short run and in the long run.

Lower personal income taxes

The long-run aggregate supply curve shows the relationship between

The basic aggregate demand and aggregate supply curve model helps explain

The automatic mechanism the price level in the case of and the price level in the case of .

In the long run

Explain how each of the following events would affect the long-run aggregate supply curve. a.A lower price level b.A decrease in the labor force c.A decrease in the quantity of capital goods d.Technological change

Potential GDP refers to the level of

Figure 15-1 -Refer to Figure 15-1.Ceteris paribus,a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S.exports increasing faster than U.S.imports.This would be represented by a movement from

When people became concerned with the underlying value of their houses and became concerned with the expectations of the prices of their houses increasing,a housing bubble occurred.

The level of long-run aggregate supply is affected by all of the following except

Figure 15-4 -Refer to Figure 15-4.Given the economy is at point A in year 1,what is the inflation rate between year 1 and year 2?

Figure 15-3 -Refer to Figure 15-3.Suppose the economy is at point C.If government spending decreases in the economy,where will the eventual long-run equilibrium be?

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age.What did this technological change do the short-run supply curve?

Figure 15-1 -Refer to Figure 15-1.Ceteris paribus,an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

Suppose the U.S.GDP growth rate is slower relative to other countries' GDP growth rates.This will

Workers and firms both expect that prices will be 2.5% higher next year than they are this year.As a result

Figure 15-4 -Refer to Figure 15-4.Given the economy is at point A in year 1,what will happen to the unemployment rate in year 2?