Question 1

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Accepted Answer

A) True 
 B)False

Question 2

An economy adjust on its own to close an inflationary gap because there is

Accepted Answer

A)  pressure on nominal wages to fall and this shifts the SRAS curve rightward.
B)  pressure on nominal wages to rise and this shifts the SRAS curve rightward.
C)  pressure on nominal wages to fall and this shifts the SRAS curve leftward.
D)  pressure on nominal wages to rise and this shifts the SRAS curve leftward.E) C) and D)
F) B) and C)

Question 3

Figure 7-2
 
-Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

Accepted Answer

A)  $6,481 billion
B)  $7,000 billion
C)  $7,560 billion
D)  cannot be determined from the information givenE) B) and C)
F) All of the above

Question 4

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Accepted Answer

A)  It refers to the effect of changes in the price level on quantity of investment demanded which in turn affects interest rates.
B)  It refers to the effect of interest rates on borrowing which in turn affects consumption spending.
C)  It refers to the effect of changes in the price level on interest rates which in turn affects the quantity of investment demanded.
D)  It refers to the shifts in aggregate demand when interest rates change.E) A) and B)
F) None of the above

Question 5

A movement along the aggregate demand curve is called a

Accepted Answer

A)  change in aggregate demand.
B)  change in the aggregate quantity of good and services demanded.
C)  determinant of aggregate demand.
D)  revealed expenditure on aggregate demand.E) None of the above
F) B) and C)

Question 6

Which of the following will increase the aggregate quantity of output supplied?

Accepted Answer

A)  an increase in input prices
B)  an increase in the average price level
C)  a technological advancement
D)  an increase in net exportsE) None of the above
F) All of the above

Question 7

Which of the following is false about potential output?

Accepted Answer

A)  It is the level of output an economy can achieve when labor is employed at its natural level.
B)  It is the long run output level that guarantees price stability.
C)  It is also called the natural level of real GDP.
D)  If a country is producing its potential output, then it is producing at a point on its production possibilities frontier.E) B) and D)
F) A) and D)

Question 8

Which of the following is an explanation for price stickiness?
I.There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II.Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III.Firms may have explicit long-term contracts to sell their products to other firms at specified prices.

Accepted Answer

A)  I only
B)  I and II only
C)  I and III only
D)  I, II, and IIIE) A) and D)
F) C) and D)

Question 9

The aggregate demand curve slopes downward
I.for the same reasons that an ordinary demand curve does.
II.in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption.
III.because as the price level falls, the net export component of aggregate demand increases.

Accepted Answer

A)  I, II, and III
B)  II and III
C)  II only
D)  III onlyE) A) and B)
F) None of the above

Question 10

Changes in aggregate demand can be caused by changes in
I.wages.
II.raw materials costs.
III.government spending.
IV.government regulations that increase the cost of doing business.

Accepted Answer

A)  all of the above
B)  I and III only
C)  I, III, and IV
D)  III onlyE) A) and B)
F) A) and C)

Question 11

The strong dollar in 2001

Accepted Answer

A)  made U.S.exports more attractive relative to foreign goods, thereby increasing U.S.exports.
B)  made U.S.exports more expensive relative to foreign goods, thereby reducing U.S.exports.
C)  made U.S.imports more expensive, thereby reducing aggregate demand.
D)  made U.S.imports more attractive, thereby increasing aggregate demand.E) B) and C)
F) A) and D)

Question 12

A decrease in aggregate demand, all other things unchanged, will generate _______ in potential output and _______ in the price level.

Accepted Answer

A)  an increase; no change
B)  a decrease; no change
C)  no change; an increase
D)  no change; a decreaseE) C) and D)
F) A) and B)

Question 13

A change in the aggregate quantity of goods and services supplied at every price level is called a

Accepted Answer

A)  change in short-run aggregate supply.
B)  change in long-run aggregate supply.
C)  change in short-run aggregate quantity of output supplied.
D)  determinant of short-run aggregate supply.E) A) and B)
F) A) and C)

Question 14

The long-run aggregate supply curve is vertical at

Accepted Answer

A)  potential output.
B)  the actual level of real output.
C)  the actual level of nominal output.
D)  100% employment of the labor force.E) A) and B)
F) A) and C)

Question 15

The short-run aggregate supply curve slopes upward because of

Accepted Answer

A)  wage and price stickiness.
B)  wage and price flexibility.
C)  increasing technology.
D)  a reduction in resource availability at higher price levels.E) A) and B)
F) All of the above

Question 16

Figure 7-1
 
-Refer to Figure 7-1.A movement from point B to point E on could be due to

Accepted Answer

A)  an increase in consumer confidence
B)  an increase in the market interest rate
C)  an increase in personal income taxes
D)  a decrease in transfer paymentsE) B) and C)
F) All of the above

Question 17

To eliminate a recessionary gap, policy-makers may pursue

Accepted Answer

A)  an expansionary policy that increases aggregate demand.
B)  a contractionary policy that increases aggregate demand.
C)  a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand.
D)  an intervention policy that decreases aggregate supply and increases aggregate demand.E) B) and C)
F) C) and D)

Question 18

Figure 7-2
 
-Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

Accepted Answer

A)  $6,034 billion
B)  $8,120 billion
C)  $9,120 billion
D)  cannot be determined from the information givenE) B) and C)
F) A) and D)

Question 19

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Accepted Answer

A)  shift the aggregate demand curve to the right.
B)  shift the aggregate demand curve to the left.
C)  not affect aggregate but rather aggregate supply because firms will now produce less.
D)  shift both the aggregate demand curve and the aggregate supply curve to the left.E) None of the above
F) A) and C)

Question 20

Which of the following statements is true of the economy in the long run? In the long run,
I.real GDP eventually moves to potential because all wages and prices are assumed to be flexible.
II.the economy can achieve its natural level of employment and potential output at any price level.
III.there is no cyclical unemployment.

Accepted Answer

A)  I only
B)  I and II only
C)  I and III only
D)  I, II, and IIIE) C) and D)
F) B) and D)

Exam 22: Aggregate Demand and Aggregate Supply

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

Correct Answer
verified

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Correct Answer
verified

The short-run aggregate supply curve slopes upward because of

Correct Answer
verified

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

Correct Answer
verified

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Correct Answer
verified

Changes in aggregate demand can be caused by changes in I.wages. II.raw materials costs. III.government spending. IV.government regulations that increase the cost of doing business.

Correct Answer
verified

The long-run aggregate supply curve is vertical at

Correct Answer
verified

Which of the following will increase the aggregate quantity of output supplied?

Correct Answer
verified

Figure 7-1 -Refer to Figure 7-1.A movement from point B to point E on could be due to

Correct Answer
verified

The strong dollar in 2001

Correct Answer
verified

A movement along the aggregate demand curve is called a

Correct Answer
verified

Correct Answer
verified

An economy adjust on its own to close an inflationary gap because there is

Correct Answer
verified

Correct Answer
verified

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Correct Answer
verified

A change in the aggregate quantity of goods and services supplied at every price level is called a

Correct Answer
verified

Which of the following is false about potential output?

Correct Answer
verified

To eliminate a recessionary gap, policy-makers may pursue

Correct Answer
verified

A decrease in aggregate demand, all other things unchanged, will generate _ in potential output and _ in the price level.

Correct Answer
verified

Correct Answer
verified

Exam 22: Aggregate Demand and Aggregate Supply

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.16, what is the value of nominal GDP?

Correct AnswerverifiedShow Answer

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve slopes upward because of

Correct AnswerverifiedShow Answer

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Correct AnswerverifiedShow Answer

Changes in aggregate demand can be caused by changes in I.wages. II.raw materials costs. III.government spending. IV.government regulations that increase the cost of doing business.

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical at

Correct AnswerverifiedShow Answer

Which of the following will increase the aggregate quantity of output supplied?

Correct AnswerverifiedShow Answer

Figure 7-1 -Refer to Figure 7-1.A movement from point B to point E on could be due to

Correct AnswerverifiedShow Answer

The strong dollar in 2001

Correct AnswerverifiedShow Answer

A movement along the aggregate demand curve is called a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An economy adjust on its own to close an inflationary gap because there is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the interest rate effect that explains why the aggregate demand curve slopes downward?

Correct AnswerverifiedShow Answer

A change in the aggregate quantity of goods and services supplied at every price level is called a

Correct AnswerverifiedShow Answer

Which of the following is false about potential output?

Correct AnswerverifiedShow Answer

To eliminate a recessionary gap, policy-makers may pursue

Correct AnswerverifiedShow Answer

A decrease in aggregate demand, all other things unchanged, will generate _______ in potential output and _______ in the price level.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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A decrease in aggregate demand, all other things unchanged, will generate _ in potential output and _ in the price level.

Correct Answer
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Correct Answer
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