Question 1

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
-Refer to Optimism.How is the new long-run equilibrium different from the original one?

Accepted Answer

A)  both price and real GDP are higher 
B)  both price and real GDP are lower. 
C)  the price level is the same and GDP is higher. 
D)  the price level is higher and real GDP is the same.

Question 2

Which of the following alone can explain the change in the price level and output during World War II?

Accepted Answer

A)  aggregate demand shifted right 
B)  aggregate demand shifted left 
C)  aggregate supply shifted right 
D)  aggregate supply shifted left

Question 3

Sticky nominal wages can result in

Accepted Answer

A)  lower profits for firms when the price level is lower than expected. 
B)  a decrease in real wages when the price level is lower than expected. 
C)  a short-run aggregate-supply curve that is vertical. 
D)  a long-run aggregate-supply curve that is upward-sloping.

Question 4

Other things the same,an unexpected fall in the price level results in some firms having

Accepted Answer

A)  lower than desired prices which increases their sales. 
B)  lower than desired prices which depresses their sales. 
C)  higher than desired prices which increases their sales. 
D)  higher than desired prices which depresses their sales.

Question 5

If businesses in general decide that they have overbuilt and so now have too much capital,their response to this would initially shift

Accepted Answer

A)  aggregate demand right. 
B)  aggregate demand left. 
C)  aggregate supply right. 
D)  aggregate supply left.

Question 6

Optimism
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
-Refer to Pessimism.In the short run what happens to the price level and real GDP?

Accepted Answer

A)  Both the price level and real GDP rise. 
B)  Both the price level and real GDP fall. 
C)  The price level rises and real GDP falls. 
D)  The price level falls and real GDP rises.

Question 7

Keynes explained that recessions and depressions occur because of

Accepted Answer

A)  excess aggregate demand. 
B)  inadequate aggregate demand. 
C)  excess aggregate supply. 
D)  inadequate aggregate supply.

Question 8

Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

The answer of Explain how an increase in the price...

Question 9

Other things the same,the aggregate quantity of output supplied will decrease if the price level

Accepted Answer

A)  is lower than expected so that firms believe the relative price of their output has increased. 
B)  is lower than expected so that firms believe the relative price of their output has decreased. 
C)  is higher than expected so that firms believe the relative price of their output has increased. 
D)  is higher than expected so that firms believe the relative price of their output has decreased.

Question 10

Which of the following would cause prices to rise and real GDP to fall in the short run?

Accepted Answer

A)  an increase in the expected price level 
B)  an increase in the capital stock 
C)  an increase in the quantity of labor available 
D)  All of the above are correct.

Question 11

The effect of an increase in the price level on the aggregate-demand curve is represented by a

Accepted Answer

A)  shift to the right of the aggregate-demand curve. 
B)  shift to the left of the aggregate-demand curve. 
C)  movement to the left along a given aggregate-demand curve. 
D)  movement to the right along a given aggregate-demand curve.

Question 12

Recession come at

Accepted Answer

A)  regular intervals.During recessions consumption spending falls relatively more than investment spending. 
B)  regular intervals.During recessions investment spending falls relatively more than consumption spending. 
C)  irregular intervals.During recessions consumption spending falls relatively more than investment spending. 
D)  irregular intervals.During recessions investment spending falls relatively more than consumption spending.

Question 13

The aggregate demand and aggregate supply model implies monetary neutrality

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short run and the long run. 
D)  in neither the short run nor long run.

Question 14

Figure 33-2. 
-Refer to Stock Market Boom 2014.In the short run what happens to the price level and real GDP?

Accepted Answer

A)  both the price level and real GDP rise. 
B)  both the price level and real GDP fall. 
C)  the price level rises and real GDP falls. 
D)  the price level falls and real GDP rises.

Question 15

Which of the following explains why production rises in most years?

Accepted Answer

A)  increases in the labor force 
B)  increases in the capital stock 
C)  advances in technological knowledge 
D)  All of the above are correct.

Question 16

In the context of the aggregate-demand curve,the interest-rate effect refers to the idea that,when the price level increases,

Accepted Answer

A)  the real value of money decreases;in turn,the real value of the dollar increases in foreign exchange markets,which decreases net exports. 
B)  the real value of money decreases;in turn,interest rates increase,which decreases net exports. 
C)  households increase their holdings of money;in turn,interest rates decrease,which reduces spending on investment goods. 
D)  households increase their holdings of money;in turn,interest rates increase,which reduces spending on investment goods.

Question 17

Aggregate demand includes

Accepted Answer

A)  only the quantity of goods and services households want to buy. 
B)  only the quantity of goods and services households and firms want to buy.. 
C)  only the quantity of goods and services households,firms,and the government want to buy. 
D)  the quantity of goods and services households,firms,the government,and customer abroad want to buy.

Question 18

During the last half of 1980,the U.S.unemployment rate was about 7.5 percent.Historical experience suggests that this is

Accepted Answer

A)  above the natural rate,so real GDP growth was likely low. 
B)  above the natural rate,so real GDP growth was likely high. 
C)  below the natural rate,so real GDP growth was likely low. 
D)  below the natural rate,so real GDP growth was likely high.

Question 19

In 2008 due to an economic slowdown and fear of a recession,the government

Accepted Answer

A)  gave a tax rebate.Tax cuts shift aggregate demand right. 
B)  reduced tax deductions.Tax cuts shift aggregate demand right. 
C)  gave a tax rebate.Tax cuts shift aggregate demand left. 
D)  reduced tax deductions.Tax cuts shift aggregate demand left.

Question 20

Which of the following shifts long-run aggregate supply right?

Accepted Answer

A)  an increase in either the physical or human capital stock 
B)  an increase in the human but not the physical capital stock 
C)  an increase in the physical capital stock,but no the human capital stock 
D)  neither an increase in the physical capital stock or the human capital stock

Exam 33: Aggregate Demand and Aggregate Supply