Question 1

In the long run, increased government spending is ineffective in raising equilibrium real GDP.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following economic changes will decrease household expenditures?

Accepted Answer

A)  Population growth
B)  Lower income taxes
C)  An appreciation of the domestic currency
D)  Increased consumer confidence
E)  A higher domestic price level E

Question 3

In the long run, increased consumption spending raises only the price level.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following would result in a decrease in aggregate demand?

Accepted Answer

A)  A higher domestic price level
B)  Higher raw materials prices
C)  Lower aggregate expenditures
D)  Technological advances
E)  Expansionary government policy

Question 5

Suppose the long-run aggregate supply curve shifts to the right as a consequence of the discovery of more efficient production technologies.Given unchanged aggregate expenditure, this implies a rise in long-run equilibrium output and a decline in the equilibrium price level.

Accepted Answer

A) True 
 B)False

Question 6

Other things equal, an increase in aggregate supply will cause:

Accepted Answer

A)  a decrease in equilibrium real GDP and a decrease in the equilibrium price level.
B)  an economic contraction.
C)  an increase in equilibrium real GDP and an increase in the equilibrium price level.
D)  cost-push inflation.
E)  a reduction in unemployment and a decline in inflation.

Question 7

Assuming a fixed exchange rate, a decrease in U.S.prices relative to European prices will:

Accepted Answer

A)  decrease European exports to the United States.
B)  increase U.S.imports from Europe.
C)  decrease aggregate spending in the U.S.
D)  not affect U.S.exports or imports.
E)  raise the purchasing power of U.S.consumers.

Question 8

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2  Refer to Figure 8.2.The combination of rising prices and falling output is known as stagflation.This phenomenon is represented by which of the following shifts?

Accepted Answer

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Question 9

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2  Refer to Figure 8.2.A movement from equilibrium point A to equilibrium point B would be the result of a(n):

Accepted Answer

A)  increase in consumer confidence and a decrease in productivity.
B)  technological advances and domestic price decreases.
C)  decrease in productivity and a decrease in government spending.
D)  increase in production costs and greater consumer confidence.
E)  decrease in domestic prices and decrease in direct taxes.

Question 10

If a large number of laborers shift from fixed-wage contracts to wages that depend on the cost of living adjustments, the long-run aggregate supply curve for the economy will become relatively steeper.

Accepted Answer

A) True 
 B)False

Question 11

Assume that the AD curve is held constant and short-run aggregate supply decreases.The result is a(n):

Accepted Answer

A)  increase in both equilibrium real GDP and the price level.
B)  decrease in equilibrium real GDP and an increase in the price level.
C)  decrease in both equilibrium real GDP and the price level.
D)  decrease in equilibrium real GDP, while the price level remains fixed.
E)  increase in the price level, while equilibrium real GDP remains fixed.

Question 12

Which of the following will cause net exports to rise?

Accepted Answer

A)  A depreciation of the domestic currency
B)  A fall in foreign income
C)  Higher foreign tariffs on domestic goods
D)  Inflation in domestic economy
E)  A depreciation of the foreign currency

Question 13

When the foreign price level falls, domestic goods become more expensive relative to foreign goods, causing domestic net exports and aggregate demand to fall.

Accepted Answer

A) True 
 B)False

Question 14

Identify the correct statement.

Accepted Answer

A)  As domestic income rises, imports rise and net exports fall.
B)  As foreign income rises, net exports fall.
C)  As domestic income falls, imports rise and net exports fall.
D)  As domestic income rises, imports fall and net exports rise.
E)  As foreign income falls, net exports rise.

Question 15

What happens to aggregate supply when production costs adjust completely to price increases?

Accepted Answer

A)  Both equilibrium output and prices increase
B)  Only prices rise;equilibrium output remains fixed
C)  Only equilibrium output rises;equilibrium prices remain fixed
D)  Equilibrium output falls while prices rise
E)  Both equilibrium output and prices remain fixed

Question 16

The aggregate quantity of goods and services produced will decrease at every price level when resource price rises.

Accepted Answer

A) True 
 B)False

Question 17

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Accepted Answer

A)  a horizontal line.
B)  an upward-sloping curve.
C)  a downward-sloping curve.
D)  a vertical line.
E)  a backward bending curve.

Question 18

Lower interest rates on business loans usually result in a(n):

Accepted Answer

A)  decrease in aggregate demand.
B)  decrease in aggregate supply.
C)  decrease in investment spending.
D)  increase in government spending.
E)  increase in aggregate expenditures.

Question 19

Which of the following is not held constant in the short run when determining the aggregate supply curve?

Accepted Answer

A)  Interest rates
B)  Rent
C)  Wages
D)  Profit
E)  Price level

Question 20

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3  Refer to Figure 8.3.If AS1 and AD1 represent the initial aggregate demand and supply in the economy, the long-run equilibrium real GDP will be _____ billion.

Accepted Answer

A)  $100
B)  $200
C)  $300
D)  $400
E)  $500

Exam 11: Macroeconomic Equilibrium: Aggregate Demand and Supply

In the long run, increased government spending is ineffective in raising equilibrium real GDP.

Which of the following economic changes will decrease household expenditures?

In the long run, increased consumption spending raises only the price level.

Which of the following would result in a decrease in aggregate demand?

Suppose the long-run aggregate supply curve shifts to the right as a consequence of the discovery of more efficient production technologies.Given unchanged aggregate expenditure, this implies a rise in long-run equilibrium output and a decline in the equilibrium price level.

Other things equal, an increase in aggregate supply will cause:

Assuming a fixed exchange rate, a decrease in U.S.prices relative to European prices will:

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2 Refer to Figure 8.2.The combination of rising prices and falling output is known as stagflation.This phenomenon is represented by which of the following shifts?

The figure given below represents the long-run equilibrium in the aggregate demand and aggregate supply model. Figure 8.2 Refer to Figure 8.2.A movement from equilibrium point A to equilibrium point B would be the result of a(n) :

If a large number of laborers shift from fixed-wage contracts to wages that depend on the cost of living adjustments, the long-run aggregate supply curve for the economy will become relatively steeper.

Assume that the AD curve is held constant and short-run aggregate supply decreases.The result is a(n) :

Which of the following will cause net exports to rise?

When the foreign price level falls, domestic goods become more expensive relative to foreign goods, causing domestic net exports and aggregate demand to fall.

Identify the correct statement.

What happens to aggregate supply when production costs adjust completely to price increases?

The aggregate quantity of goods and services produced will decrease at every price level when resource price rises.

The long-run aggregate supply of an economy at the potential level of real GDP is graphically represented by:

Lower interest rates on business loans usually result in a(n) :

Which of the following is not held constant in the short run when determining the aggregate supply curve?

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 Refer to Figure 8.3.If AS₁ and AD₁ represent the initial aggregate demand and supply in the economy, the long-run equilibrium real GDP will be _____ billion.