Question 1

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

A)   Output will decrease.
B)   Prices will increase.
C)   Unemployment will rise.
D)   Short-run aggregate supply will shift to the right.E) All of the above
F) None of the above

Question 2

While in office, President Obama discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes would affect the aggregate demand curve.

Accepted Answer

Raising the income tax decreases the amo...

Question 3

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result

Accepted Answer

A)   the long-run aggregate supply curve will shift to the right.
B)   the long-run aggregate supply curve will shift to the left.
C)   the economy will move up along the long-run aggregate supply curve.
D)   the economy will move down along the long-run aggregate supply curve.E) None of the above
F) All of the above

Question 4

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.E) A) and C)
F) A) and B)

Question 5

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off

Accepted Answer

A)   government spending.
B)   government spending and unplanned investment.
C)   investment and consumption spending.
D)   net exports.E) A) and B)
F) None of the above

Question 6

Using an aggregate demand graph, illustrate the impact of an increase in the interest rate.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The increase in the interest rate will ...

Question 7

Figure 24-4 1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2? A)  2.5% B)  7.3% C)  8.0% D)  10.0%" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

Accepted Answer

A)   2.5%
B)   7.3%
C)   8.0%
D)   10.0%E) All of the above
F) C) and D)

Question 8

When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.

Accepted Answer

A)   less; less
B)   less; more
C)   more; less
D)   more; moreE) All of the above
F) A) and B)

Question 9

Which of the following is considered a negative supply shock?

Accepted Answer

A)   increasing immigration in the economy causes the labor supply to rise
B)   an improvement in technology
C)   an increase in unemployment
D)   an unexpected decrease in the refining capacity for oilE) B) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)   an increase in interest rates
B)   a decrease in disposable income
C)   a decrease in expected profits for firms
D)   an increase in net exportsE) All of the above
F) B) and D)

Question 11

The ________ shows the relationship between the price level and quantity of real GDP demanded.

Accepted Answer

A)   consumer price index
B)   aggregate expenditure line
C)   45-degree line
D)   aggregate demand curveE) B) and C)
F) A) and D)

Question 12

The long-run aggregate supply curve

Accepted Answer

A)   has a negative slope.
B)   has a steep but positive slope.
C)   is horizontal.
D)   is vertical.E) B) and C)
F) C) and D)

Question 13

A negative supply shock in the short run causes

Accepted Answer

A)   the aggregate supply curve to shift to the left.
B)   the price level to fall.
C)   unemployment to fall.
D)   equilibrium real GDP to rise.E) A) and C)
F) A) and B)

Question 14

How do lower taxes affect aggregate demand?

Accepted Answer

A)   They increase disposable income, consumption, and aggregate demand.
B)   They reduce disposable income, consumption, and aggregate demand.
C)   they increase corporate investment and aggregate demand.
D)   They increase aggregate supply and thus increase aggregate demand as well.E) A) and B)
F) B) and D)

Question 15

The international trade effect states that a(n)  ________ in the price level will ________ net exports.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; decrease
D)   decrease; not affectE) C) and D)
F) B) and C)

Question 16

Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> This illustrates an increase in the pri...

Question 17

For the recession of 2007-2009, it took ________ for real GDP to return to its cyclical peak.

Accepted Answer

A)   about 18 months
B)   about 2 year
C)   about 3.5 years
D)   almost 5 yearsE) A) and B)
F) None of the above

Question 18

During 2008, oil price increases

Accepted Answer

A)   shifted the short-run aggregate supply curve farther to the left than similar increases had 30 years earlier.
B)   shifted the aggregate demand curve farther to the right than similar increases had 30 years earlier.
C)   did not shift the short-run aggregate supply curve as far to the left as similar increases had 30 years earlier.
D)   shifted the aggregate demand curve farther to the left than similar increases had 30 years earlier.E) A) and D)
F) A) and C)

Question 19

The level of aggregate supply in the long run is not affected by

Accepted Answer

A)   changes in technology.
B)   changes in the capital stock.
C)   changes in the price level.
D)   changes in the number of workers.E) All of the above
F) A) and D)

Question 20

Ceteris paribus, in the long run, a negative supply shock causes

Accepted Answer

A)   the long-run aggregate supply curve to shift to the left.
B)   the price level to rise initially, and then return to its lower level.
C)   unemployment to fall below its short-run level.
D)   equilibrium real GDP to fall.E) None of the above
F) A) and C)

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The long-run aggregate supply curve

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

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During 2008, oil price increases

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Figure 24-4 -Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

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Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

Correct Answerverified This illustrates an increase in the pri...View AnswerShow Answer

When people became ________ concerned with the underlying value of their houses and became ________ concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.

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Using an aggregate demand graph, illustrate the impact of an increase in the interest rate.

Correct Answerverified The increase in the interest rate will ...View AnswerShow Answer

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

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Which of the following is considered a negative supply shock?

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The international trade effect states that a(n) ________ in the price level will ________ net exports.

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For the recession of 2007-2009, it took ________ for real GDP to return to its cyclical peak.

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A negative supply shock in the short run causes

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While in office, President Obama discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes would affect the aggregate demand curve.

Correct AnswerverifiedRaising the income tax decreases the amo...View AnswerShow Answer

The level of aggregate supply in the long run is not affected by

Correct AnswerverifiedShow Answer

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off

Correct AnswerverifiedShow Answer

Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Correct AnswerverifiedShow Answer

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result

Correct AnswerverifiedShow Answer

Ceteris paribus, in the long run, a negative supply shock causes

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The ________ shows the relationship between the price level and quantity of real GDP demanded.

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How do lower taxes affect aggregate demand?

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Figure 24-4 -Refer to Figure 24-4. In the figure above, AD₁, LRAS₁ and SRAS₁ denote AD, LRAS and SRAS in year 1, while AD₂, LRAS₂ and SRAS₂ denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

Correct Answer
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Correct Answer
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This illustrates an increase in the pri...
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When people became concerned with the underlying value of their houses and became concerned with the expectations of the prices of their houses increasing, a housing bubble occurred.

Correct Answer
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Correct Answer
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The increase in the interest rate will ...
View Answer

Correct Answer
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Correct Answer
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The international trade effect states that a(n) in the price level will net exports.

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Correct Answer
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Correct Answer
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Correct Answer
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Raising the income tax decreases the amo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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