Question 1

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,what would we expect to happen in the short run?

Accepted Answer

A)  Real GDP will rise,and the price level might rise,fall,or stay the same. 
B)  Real GDP will fall,and the price level might rise,fall,or stay the same. 
C)  The price level will rise,and real GDP might rise,fall,or stay the same. 
D)  The price level will fall,and real GDP might rise,fall,or stay the same.

Question 2

By how much did the real GDP per person increase during World War II?

Accepted Answer

A)  20 percent 
B)  40 percent 
C)  60 percent 
D)  80 percent

Question 3

This problem compares two economies: Economy A,having a lower elasticity of the short-run aggregate-supply curve,and economy B,with higher elasticity.Draw a graph representing an aggregate-demand curve and two short-run aggregate-supply curves,ASA and ASB,such that ASB is flatter than ASA.Both economies are in long-run equilibrium at the same output and price level.Suppose a sharp decline in the housing prices and a subsequent financial meltdown reduces the aggregate demand by the same amount in both economies.Use the graph to explain the differences in output and price declines in the two economies.What do we learn from this exercise?

Accepted Answer

The answer of This problem compares two economies: Economy A,having...

Question 4

Compare the effects of an aggregate-demand-induced recession with an aggregate-supply-induced recession.How would you recognize that a recession is induced by demand or supply? What policies would be appropriate in the first case and what in the second?

Accepted Answer

The answer of Compare the effects of an aggregate-demand-induced recession...

Question 5

Why is the aggregate demand curve downward sloping?

Accepted Answer

A)  because the more people buy,the fewer additional purchases they need 
B)  because people buy something else when the price goes up 
C)  because people feel poorer and buy less when prices go up 
D)  because the more people wish to consume,the lower the price is

Question 6

What was the main reason for the economic boom of the early 1940s?

Accepted Answer

A)  increased government expenditures 
B)  falling prices of oil and other natural resources 
C)  an increase in the immigration of skilled workers 
D)  rapid developments in transportation,electronics,and communication

Question 7

What has NOT been suggested as a cause of the Great Depression?

Accepted Answer

A)  rapidly rising asset prices 
B)  a decline in Canadian exports 
C)  a decrease in stock prices 
D)  the collapse of the banking system

Question 8

What is NOT included in aggregate demand?

Accepted Answer

A)  purchases of stock and bonds 
B)  purchases of services such as visits to the dentist 
C)  purchases of capital goods such as ovens in a bakery 
D)  purchases by foreigners of consumer goods produced in Canada

Question 9

Which statement best describes the effects of an increase in the price level?

Accepted Answer

A)  Dollars are worth more,so people spend more. 
B)  Dollars are worth more,so people spend less. 
C)  Dollars are worth less,so people spend more. 
D)  Dollars are worth less,so people spend less.

Question 10

What are the effects of a decrease in the price level?

Accepted Answer

A)  The real interest rate increases,the dollar appreciates,and net exports increase. 
B)  The real interest rate increases,the dollar depreciates,and net exports decrease. 
C)  The real interest rate decreases,the dollar depreciates,and net exports increase. 
D)  The real interest rate decreases,the dollar appreciates,and net exports decrease.

Question 11

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage.In the short run,what would we expect to happen?

Accepted Answer

A)  the price level to rise,and real GDP to fall 
B)  the price level to fall,and real GDP to remain unchanged 
C)  the price level to remain unchanged,and real GDP to fall 
D)  the price level to fall,and the real GDP to rise the same

Question 12

What were the changes in output in the early 1930s and early 1940s in Canada,respectively?

Accepted Answer

A)  a large increase and a large increase 
B)  a large increase and a large decrease 
C)  a large decrease and a large increase 
D)  a large decrease and a large decrease

Question 13

Scenario 14-2
The economy is in long-run equilibrium.Suddenly,due to corporate scandals,a recession experienced by a major trading partner,and the loss of confidence among policymakers,citizens become pessimistic concerning the future.They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2.How does the new long-run equilibrium differ from the original one?

Accepted Answer

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

Question 14

An unexpected increase in the price level does not shift the aggregate-supply curve,but an expected increase in the price level shifts the aggregate-supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the economy is in long-run equilibrium.If there is a tax cut at the same time that major new sources of oil are discovered in the country,what would we expect will happen in the short run?

Accepted Answer

A)  Real GDP will rise,and the price level might rise,fall,or stay the same. 
B)  Real GDP will fall,and the price level might rise,fall,or stay the same. 
C)  The price level will rise,and real GDP might rise,fall,or stay the same. 
D)  The price level will fall,and real GDP might rise,fall,or stay the same.

Question 16

What is included in the aggregate demand for goods and services?

Accepted Answer

A)  intermediate goods 
B)  technology 
C)  net exports 
D)  government deficit

Question 17

Which statement characterizes business cycles?

Accepted Answer

A)  They are predictable fluctuations in consumption. 
B)  They are no longer very important due to government policy. 
C)  They are fluctuations in real GDP and related variables over time. 
D)  They are easily predicted by competent economists.

Question 18

If the economy is initially in long-run equilibrium,which statement best describes the effects of a shift in aggregate demand?

Accepted Answer

A)  Prices and output are affected in both the short and long run. 
B)  Prices and output are affected only in the short run. 
C)  Prices are affected in the long and short run,but output only in the short run. 
D)  Prices are affected in the long and short run,but output only in the long run.

Question 19

According to the sticky-wage theory,which statement is consistent with an unexpected fall in the price level?

Accepted Answer

A)  The real wage rises and employment rises. 
B)  The real wage rises and employment falls. 
C)  The real wage falls and employment rises. 
D)  The real wage falls and employment falls.

Question 20

Use the misperceptions theory to discuss the economic forces that shift the aggregate-supply curve when the expectations about the overall price level change.

Accepted Answer

The answer of Use the misperceptions theory to discuss the...

Exam 14: Aggregate Demand and Aggregate Supply