Question 1

Figure 24-1 
-Refer to Figure 24-1.Ceteris paribus,a decrease in government 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 2

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 3

According to the "wealth effect," when the ________ falls,the ________ rises.

Accepted Answer

A) inflation rate;nominal value of household assets 
B) unemployment rate;average level of household income 
C) price level;the nominal value of household wealth 
D) price level;the real value of household wealth

Question 4

The international trade effect states that

Accepted Answer

A) an increase in the price level will raise net exports. 
B) an increase in the price level will lower net exports. 
C) an increase in the price level will raise exports. 
D) an increase in the price level will lower imports.

Question 5

Figure 24-3 
-Refer to Figure 24-3.Suppose the economy is at point A.If government spending increases in the economy,where will the eventual long-run equilibrium be?

Accepted Answer

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

Question 6

During the severe 2007-2009 recession,Delta Airlines sold ________ passenger tickets and ________ the prices of the tickets it did sell.The result was a $1.2 billion loss in 2009.

Accepted Answer

A) fewer;raise 
B) fewer;cut 
C) more;raise 
D) more;cut

Question 7

Stagflation occurs when aggregate supply and aggregate demand both increase.

Accepted Answer

A) True 
 B)False

Question 8

The ________ curve is vertical.

Accepted Answer

A) short-run aggregate supply 
B) short-run aggregate demand 
C) long-run aggregate supply 
D) long-run aggregate demand

Question 9

Proponents of the real business cycle model argue that the short-run aggregate supply curve is

Accepted Answer

A) flat. 
B) positively sloped. 
C) vertical. 
D) negatively sloped.

Question 10

An increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?

Accepted Answer

A) The price level will fall,and the level of GDP will rise. 
B) The price level will fall,and the level of GDP will fall. 
C) The price level will rise,and the level of GDP will fall. 
D) The price level will rise,and the level of GDP will be unaffected.

Question 11

When the economy enters into a recession,your employer is ________ to reduce your wages because ________.

Accepted Answer

A) unlikely;output and input prices generally fall during recession 
B) unlikely;lower wages reduce productivity and morale 
C) likely;output prices always fall during recession 
D) likely;aggregate demand is vertical in the long run

Question 12

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 13

Figure 24-1 
-Refer to Figure 24-1.Ceteris paribus,an increase in the value of the domestic currency relative to foreign currencies 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 14

When the price of oil rises unexpectedly,the equilibrium price level ________ and the unemployment rate ________ in the short run.

Accepted Answer

A) rises;falls 
B) rises;rises 
C) falls;falls 
D) falls;rises

Question 15

Which of the following will shift the aggregate demand curve to the left,ceteris paribus?

Accepted Answer

A) an increase in interest rates 
B) an increase in disposable income 
C) an increase in expected profits for firms 
D) an increase in net exports

Question 16

If workers leave a country to seek out better opportunities in another country,then this will

Accepted Answer

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

Question 17

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 18

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A) Potential real GDP increases continuously. 
B) The aggregate demand curve shifts to the right during most periods. 
C) The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages. 
D) Aggregate demand and potential real GDP decrease continuously.

Question 19

How do changes in income tax policies affect aggregate demand?

Accepted Answer

A) Higher taxes increase disposable income,consumption,and aggregate demand. 
B) Higher taxes reduce disposable income,consumption,and aggregate demand. 
C) Higher taxes increase corporate investment and aggregate demand. 
D) Higher taxes increase aggregate supply and thus increase aggregate demand as well.

Question 20

The proponents of rational expectations and monetarism think that the Federal Reserve should adopt

Accepted Answer

A) an inflation target. 
B) a monetary aggregate target. 
C) a constant monetary growth rule. 
D) an interest rate target.

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Figure 24-1 -Refer to Figure 24-1.Ceteris paribus,a decrease in government spending would be represented by a movement from

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

According to the "wealth effect," when the falls,the rises.

The international trade effect states that

Figure 24-3 -Refer to Figure 24-3.Suppose the economy is at point A.If government spending increases in the economy,where will the eventual long-run equilibrium be?

During the severe 2007-2009 recession,Delta Airlines sold passenger tickets and the prices of the tickets it did sell.The result was a $1.2 billion loss in 2009.