Question 1

Imagine two economies that are identical except that for a long time,economy A has had a money supply of $1,000 billion while economy B has had a money supply of $500 billion.It follows that

Accepted Answer

A)  real GDP and the price level are lower in country B. 
B)  real GDP,but not the price level,is lower in country B. 
C)  the price level,but not real GDP is lower in country B. 
D)  neither the price level or real GDP is lower in country B.

Question 2

Suppose a stock market boom makes people feel wealthier.The increase in wealth would cause people to desire

Accepted Answer

A)  increased consumption,which shifts the aggregate-demand curve right. 
B)  increased consumption,which shifts the aggregate-demand curve left. 
C)  decreased consumption,which shifts the aggregate-demand curve right. 
D)  decreased consumption,which shifts the aggregate-demand curve left.

Question 3

Consider the exhibit below for the following questions.
Figure 23-1 
-Refer to Figure 23-1.If the economy is in long-run equilibrium,then an adverse shift in aggregate supply would move the economy from

Accepted Answer

A)  A to B. 
B)  C to D. 
C)  B to A. 
D)  D to C.

Question 4

Other things the same,if the capital stock increases,then in the long run

Accepted Answer

A)  both output and prices are higher. 
B)  output is higher and prices are lower. 
C)  output is lower and prices are higher. 
D)  both output and prices are lower.

Question 5

Suppose the economy is in long-run equilibrium.If the government increases its expenditures,eventually the increase in aggregate demand causes price expectations to

Accepted Answer

A)  rise.This rise in price expectations shifts the short-run aggregate supply curve to the right. 
B)  rise.This rise in price expectations shifts the short-run aggregate supply curve to the left. 
C)  fall.This fall in price expectations shifts the short-run aggregate supply curve to the right. 
D)  fall.This fall in price expectations shifts the short-run aggregate supply curve to the left.

Question 6

Suppose that a decrease in the demand for goods and services pushes the economy into recession.What happens to the price level? If the government does nothing,what ensures that the economy still eventually gets back to the natural rate of output?

Accepted Answer

The answer of Suppose that a decrease in the demand...

Question 7

Real GDP

Accepted Answer

A)  is the current dollar value of all goods produced by the citizens of an economy within a given time. 
B)  measures economic activity and income. 
C)  is used primarily to measure long-run changes rather than short-run fluctuations. 
D)  All of the above are correct.

Question 8

Financial Crisis
Suppose that banks are less able to raise funds and so lend less.Consequently,because people and households are less able to borrow,they spend less at any given price level than they would otherwise.The crisis is persistent so lending should remain depressed for some time.
-Refer to Financial Crisis.If nominal wages are sticky,which of the following helps explains the change in output?

Accepted Answer

A)  real wages fall,so firms choose to produce less 
B)  real wages fall,so firms choose to produce more 
C)  real wages rise,so firms choose to produce less 
D)  real wages rise,so firms choose to produce more

Question 9

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

Question 10

Pessimism
Suppose the economy is in long-run equilibrium.Then because of corporate scandal,international tensions,and loss of confidence in policymakers,people become pessimistic regarding the future and retain that level of pessimism for some time.
-Refer to Pessimism.What happens to the expected price level and what's the result for wage bargaining?

Accepted Answer

A)  The expected price level rises.Bargains are struck for higher wages. 
B)  The expected price level rises.Bargains are struck for lower wages. 
C)  The expected price level falls.Bargains are struck for higher wages. 
D)  The expected price level falls.Bargains are struck for lower wages.

Question 11

Wages tend to be sticky

Accepted Answer

A)  because of contracts,social norms,and notions of fairness. 
B)  because of contracts,but not social norms or notions of fairness. 
C)  because of social norms and notions of fairness,but not contracts. 
D)  None of the above are correct.

Question 12

During recessions investment

Accepted Answer

A)  falls by a larger percentage than GDP. 
B)  falls by about the same percentage as GDP. 
C)  falls by a smaller percentage than GDP. 
D)  falls but the percentage change is sometimes much larger and sometimes much smaller.

Question 13

As the price level rises

Accepted Answer

A)  people are more willing to lend,so interest rates rise. 
B)  people are more willing to lend,so interest rates fall. 
C)  people are less willing to lend,so interest rates fall. 
D)  people are less willing to lend,so interest rates rise.

Question 14

Other things the same,an increase in the price level makes consumers feel

Accepted Answer

A)  less wealthy,so the quantity of goods and services demanded falls. 
B)  less wealthy,so the quantity of goods and services demanded rises. 
C)  more wealthy,so the quantity of goods and services demanded rises. 
D)  more wealthy,so the quantity of goods and services demanded falls.

Question 15

The aggregate quantity of goods and services demanded changes as the price level rises because

Accepted Answer

A)  real wealth falls,interest rates rise,and the dollar appreciates. 
B)  real wealth falls,interest rates rise,and the dollar depreciates. 
C)  real wealth rises,interest rates fall,and the dollar appreciates. 
D)  real wealth rises,interest rates fall,and the dollar depreciates.

Question 16

Suppose that during the Great Depression long-run aggregate supply shifted left.To be consistent with what happened to the price level and output,what would have had to happen to aggregate demand?

Accepted Answer

A)  It would have to have shifted left by less than aggregate supply. 
B)  It would have to have shifted left by more than aggregate supply. 
C)  It would have to have shifted right by less than aggregate supply. 
D)  It would have to have shifted right by more than aggregate supply.

Question 17

Which of the following would shift the long-run aggregate supply curve right?

Accepted Answer

A)  both an increase in the capital stock and an increase in the price level 
B)  an increase in the capital stock,but not an increase in the price level 
C)  an increase in the money supply,but not an increase in the capital stock 
D)  neither an increase in the money supply nor an increase in the capital stock

Question 18

Tax cuts shift aggregate demand

Accepted Answer

A)  right as do increases in government spending. 
B)  right while increases in government spending shift aggregate demand left. 
C)  left as do increases in government spending. 
D)  left while increases in government spending shift aggregate demand right.

Question 19

If speculators bid up the value of the dollar in the market for foreign-currency exchange,U.S.aggregate demand would shift to the left.

Accepted Answer

A) True 
 B)False

Question 20

Other things the same,if the money supply rises by 2% and people were expecting it to rise by 5%,then some firms have

Accepted Answer

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

Exam 23: Aggregate Demand and Aggregate Supply