Question 1

A sudden change in the normal behavior of inflation, unrelated to the nation's output gap is called:

Accepted Answer

A)  short-run equilibrium. 
B)  long-run equilibrium. 
C)  an inflation shock. 
D)  inflation inertia.

Question 2

An increase in the aggregate demand for goods and services will result in an increase in the amount of output firms are willing to produce, and this increase in output will be accompanied by:

Accepted Answer

A)  a decrease in the inflation rate. 
B)  an increase in the inflation rate. 
C)  a decrease in nominal GDP. 
D)  an increase in potential GDP.

Question 3

Changes in planned spending not caused by changes in output or the inflation rate will shift the:

Accepted Answer

A)  aggregate supply curve. 
B)  Keynesian cross. 
C)  potential output line. 
D)  aggregate demand curve.

Question 4

Starting from long-run equilibrium, a negative inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  higher; potential 
D)  lower; lower

Question 5

Starting from long-run equilibrium, a positive inflation shock results in a short-run equilibrium with ___ inflation and ____ output.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 6

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following EXCEPT:

Accepted Answer

A)  a negative demand shock. 
B)  a positive inflation shock. 
C)  an increase in taxes. 
D)  a decrease in the money supply.

Question 7

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; low 
D)  low; high

Question 8

Changes in the expected rate of inflation will:

Accepted Answer

A)  not shift the AS curve. 
B)  shift the AS curve upward or downward. 
C)  shift the AS curve leftward or rightward. 
D)  cause the AS curve to become downward-sloping.

Question 9

A leftward shift of the AS curve indicates:

Accepted Answer

A)  a decrease in aggregate supply. 
B)  an increase in aggregate supply. 
C)  a decrease in potential GDP. 
D)  an increase in potential GDP.

Question 10

The aggregate demand curve shifts when there are changes in:

Accepted Answer

A)  the inflation rate. 
B)  planned spending that are not caused by changes in output or the inflation rate. 
C)  planned spending that are caused only by changes in output or the inflation rate. 
D)  real GDP.

Question 11

For a given inflation rate, if an increase in threats to domestic security causes the government to increase military spending, then the ______ shifts _____.

Accepted Answer

A)  aggregate demand curve; right 
B)  aggregate demand curve; left 
C)  aggregate supply curve; upward 
D)  aggregate supply curve; downward

Question 12

The Great Recession was the result of:

Accepted Answer

A)  two negative demand shocks. 
B)  a negative demand shock and a negative inflation shock. 
C)  two positive inflation shocks. 
D)  a negative demand shock and a positive inflation shock.

Question 13

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will generate a(n) _____ gap and inflation will _____.

Accepted Answer

A)  recessionary; increase 
B)  recessionary; decrease 
C)  expansionary; decrease 
D)  expansionary; increase

Question 14

The economy is in short-run equilibrium:

Accepted Answer

A)  when the AD and AS curves intersect at potential output Y*. 
B)  when the AD and AS curves intersect at a level of real GDP that is above or below Y*. 
C)  when the AD and AS curves become vertical. 
D)  at the peak of the business cycle.

Question 15

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will shift the ______ curve to the left and generate ______.

Accepted Answer

A)  aggregate demand; a recessionary output gap 
B)  aggregate supply; a recessionary output gap 
C)  aggregate demand; an expansionary output gap 
D)  aggregate supply; an expansionary output gap

Question 16

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will generate a(n) _____ gap and inflation will _____.

Accepted Answer

A)  recessionary; increase 
B)  recessionary; decrease 
C)  expansionary; decrease 
D)  expansionary; increase

Question 17

When using the AD-AS model to understand business cycles, the question, "what are the fundamental causes of business cycles?" can be thought of as the question:

Accepted Answer

A)  "what factors move the economy away from long-run equilibrium?" 
B)  "what factors move aggregate demand and aggregate supply in different directions?" 
C)  "what factors increase or decrease potential GDP?" 
D)  "what factors increase or decrease the expected rate of inflation?"

Question 18

An increase in aggregate supply is usually shown by a ______ shift of the AS curve.

Accepted Answer

A)  upward 
B)  downward 
C)  leftward 
D)  rightward

Question 19

A circle of low expected inflation leads to ____ increases in wages and costs and to ____ actual inflation.

Accepted Answer

A)  large; high 
B)  large; low 
C)  small; low 
D)  small; high

Question 20

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following EXCEPT:

Accepted Answer

A)  a negative demand shock. 
B)  a negative inflation shock. 
C)  a decrease in government spending. 
D)  a decrease in the inflation rate.

Exam 13: Spending and Output in the Short Run

A sudden change in the normal behavior of inflation, unrelated to the nation's output gap is called:

An increase in the aggregate demand for goods and services will result in an increase in the amount of output firms are willing to produce, and this increase in output will be accompanied by:

Changes in planned spending not caused by changes in output or the inflation rate will shift the:

Starting from long-run equilibrium, a negative inflation shock results in a short-run equilibrium with _ inflation and __ output.

Starting from long-run equilibrium, a positive inflation shock results in a short-run equilibrium with _ inflation and __ output.

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following EXCEPT:

A low rate of expected inflation tends to lead to a _ rate of actual inflation and a high rate of expected inflation tends to lead to a __ rate of actual inflation.

Changes in the expected rate of inflation will:

A leftward shift of the AS curve indicates:

The aggregate demand curve shifts when there are changes in:

For a given inflation rate, if an increase in threats to domestic security causes the government to increase military spending, then the __ shifts _.

The Great Recession was the result of:

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will generate a(n) _ gap and inflation will _.

The economy is in short-run equilibrium:

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will shift the curve to the left and generate .

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will generate a(n) _ gap and inflation will _.

When using the AD-AS model to understand business cycles, the question, "what are the fundamental causes of business cycles?" can be thought of as the question:

An increase in aggregate supply is usually shown by a ______ shift of the AS curve.

A circle of low expected inflation leads to increases in wages and costs and to actual inflation.

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following EXCEPT: