Question 1

The reason for the different in tax policy and spending policy by the government is due to:

Accepted Answer

A)  people not responding to tax policy as much as spending policy. 
B)  the fact that when the government engages in spending policy, they do it more aggressively. 
C)  firms drastically responding to tax changes that are implemented. 
D)  the difference in initial spending that results from engaging in tax policy.

Question 2

When the U.S. price level decreases, we would expect a:

Accepted Answer

A)  movement down along the aggregate demand curve. 
B)  shift straight up of the aggregate demand curve. 
C)  shift to the right of the aggregate demand curve. 
D)  movement up along the aggregate supply curve.

Question 3

The aggregate supply and aggregate demand model describes the interaction of which macroeconomic variables?

Accepted Answer

A)  Output and the price level 
B)  Employment and immigration 
C)  Prices and immigration 
D)  Output and number of sellers

Question 4

A sudden increase in immigration would be considered a(n):

Accepted Answer

A)  short-run supply shock. 
B)  long-run supply shock. 
C)  interest-rate shock. 
D)  A change in immigration would not affect any of these.

Question 5

An increase in the expected future price of inputs will cause:

Accepted Answer

A)  the short-run aggregate supply curve to shift to the left. 
B)  the aggregate demand curve to shift to the right. 
C)  a movement rightward along the short-run aggregate supply curve. 
D)  the long-run aggregate supply curve to shift to the left.

Question 6

Something that would cause the long-run aggregate supply curve to shift to the right would be the:

Accepted Answer

A)  unemployment rate decreasing. 
B)  discovery of a new oil reserve. 
C)  inflation rate decreasing. 
D)  The long-run aggregate supply curve is fixed, and does not shift.

Question 7

The relationship between government spending and the price level explains the:

Accepted Answer

A)  upward-sloping aggregate demand curve. 
B)  downward-sloping aggregate demand curve. 
C)  perfect elasticity of the aggregate demand curve. 
D)  None of these is true.

Question 8

The downward sloping aggregate demand curve can be explained in part through the:

Accepted Answer

A)  positive relationship between the price level and net exports. 
B)  positive relationship between the price level and consumption. 
C)  negative relationship between the price level and investment spending. 
D)  All of these are true.

Question 9

In macroeconomics, the long run refers to:

Accepted Answer

A)  one year. 
B)  two years. 
C)  ten years. 
D)  None of these is true.

Question 10

Which of the following macroeconomic variables would be drawn accurately as perfectly inelastic?

Accepted Answer

A)  Aggregate demand 
B)  Short-run aggregate supply 
C)  Long-run aggregate supply 
D)  None of these should be drawn as perfectly inelastic.

Question 11

Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:

Accepted Answer

A)  P1 and Y2. 
B)  P3 and Y1. 
C)  P2 and Y3. 
D)  P2 and Y1.

Question 12

Government spending:

Accepted Answer

A)  tends to increase with increases in the price level. 
B)  tends to increase with decreases in the price level. 
C)  remains generally unaffected by changes in the price level. 
D)  is not a component of aggregate demand.

Question 13

As the U.S. price level decreases, expenditures by which of the following will remain unaffected?

Accepted Answer

A)  Consumers 
B)  Businesses 
C)  The rest of the world 
D)  Government

Question 14

The downward-sloping aggregate demand curve is partly due to the:

Accepted Answer

A)  positive relationship between the price level and net exports. 
B)  negative relationship between the price level and net exports. 
C)  positive relationship between the price level and government spending. 
D)  negative relationship between the price level and government spending.

Question 15

When the economy experiences a permanent supply side shock that shifts the long-run aggregate supply to the right, the short run aggregate supply curve will:

Accepted Answer

A)  instantly shift left with the long-run aggregate supply to the new long-run equilibrium. 
B)  begin by shifting left initially, and then be pulled right by the long-run aggregate supply over time. 
C)  gradually shift right until it reaches long-run aggregate supply and the new long-run equilibrium. 
D)  None of these is true.

Question 16

As the U.S. price level decreases, expenditures by which of the following will increase?

Accepted Answer

A)  Consumers 
B)  Businesses 
C)  The rest of the world 
D)  All of these will increase their expenditures.

Question 17

The aggregate demand curve slopes:

Accepted Answer

A)  downward, like individual supply curves. 
B)  downward, like individual demand curves. 
C)  upward, like individual supply curves. 
D)  upward, like individual demand curves.

Question 18

There is no relationship between the price level and which component of GDP?

Accepted Answer

A)  C 
B)  I 
C)  G 
D)  NX

Question 19

When the economy produces less than its potential output, it is:

Accepted Answer

A)  called a recession. 
B)  not in long-run equilibrium. 
C)  producing a quantity less than the long-run aggregate supply quantity. 
D)  All of these are true.

Question 20

The wealth effect:

Accepted Answer

A)  explains the downward-sloping aggregate demand curve. 
B)  is the positive relationship between consumer spending and the overall price level. 
C)  is not present when wages keep pace with inflation. 
D)  explains how the aggregate demand curve shifts.

Exam 12: Aggregate Demand and Aggregate Supply