Question 1

The Federal Reserve's policy to "lean against the wind" means that

Accepted Answer

A)   interest rates are decreased as the economy expands.
B)   reserve requirements are decreased as the economy expands.
C)   reserve requirements are decreased significantly during an economic expansion.
D)   interest rates are increased gradually as the economy expands.E) A) and B)
F) A) and C)

Question 2

________ shifts the Fed rule to the left.

Accepted Answer

A)   An increase in government spending
B)   A decrease in government spending
C)   A decrease in the price level
D)   An increase in the Z factorsE) None of the above
F) B) and D)

Question 3

If the economy produces full employment output, an increase in government spending increases output but not the price level.

Accepted Answer

A) True 
 B)False

Question 4

The level of aggregate output that can be sustained in the long run without inflation is known as

Accepted Answer

A)   nominal output.
B)   real output.
C)   money output.
D)   potential output.E) C) and D)
F) All of the above

Question 5

All of the following shift the short-run aggregate supply curve except

Accepted Answer

A)   a change in the price level.
B)   a change in the price of oil.
C)   a change in the price of raw material.
D)   a change in wages as a result of a labor strike.E) B) and D)
F) All of the above

Question 6

Other things equal, a decrease in government spending shifts

Accepted Answer

A)   the AD curve to the left.
B)   the AD curve to the right.
C)   the AS curve to the left.
D)   the AS curve to the right.E) A) and B)
F) A) and C)

Question 7

Related to the Economics in Practice on p. 543: Which measure of the aggregate price level does the Fed consider the most important?

Accepted Answer

A)   the Core PCE
B)   the CPI
C)   the GDP deflator
D)   the PPIE) None of the above
F) A) and C)

Question 8

The level of output determined by the intersection of the short-run aggregate supply curve and the aggregate demand curve

Accepted Answer

A)   is always below full-employment output.
B)   is always above full-employment output.
C)   always corresponds to full-employment output.
D)   may be above, below, or equal to full-employment output.E) A) and D)
F) C) and D)

Question 9

Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause

Accepted Answer

A)   the short-run aggregate supply curve to shift to the right.
B)   the short-run aggregate supply curve to become flatter.
C)   the short-run aggregate supply curve to shift to the left.
D)   the short-run aggregate supply curve to become nearly vertical at all levels of output.E) B) and C)
F) A) and D) C

Question 10

If the economy is operating way below capacity, an increase in aggregate demand causes a ________ change in the price level and ________ change in output.

Accepted Answer

A)   big; big
B)   big; small
C)   small; big
D)   small; smallE) A) and B)
F) B) and D)

Question 11

The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

Accepted Answer

A) True 
 B)False

Question 12

Refer to the information provided in Figure 26.4 below to answer the question(s)  that follow.  Figure 26.4
-Refer to Figure 26.4. Which of the following causes the economy to move from Point A to Point E?

Accepted Answer

A)   an oil embargo that increases the price of oil
B)   technological progress
C)   an influx of immigrants
D)   an increase in the price levelE) B) and D)
F) B) and C) A

Question 13

When the ________ decreases, then potential output decreases.

Accepted Answer

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

Question 14

If the price level falls, the aggregate supply increases as a result of the aggregate demand curve shifting left.

Accepted Answer

A) True 
 B)False

Question 15

Refer to the information provided in Figure 26.2 below to answer the question(s)  that follow.  Figure 26.2
-Refer to Figure 26.2. This economy reaches capacity at

Accepted Answer

A)   $300 billion.
B)   $600 billion.
C)   $900 billion.
D)   an output level that is indeterminate from this information because aggregate demand is not given.E) B) and C)
F) All of the above

Question 16

Refer to the information provided in Figure 26.2 below to answer the question(s)  that follow.  Figure 26.2
-Refer to Figure 26.2. At $900 billion, this economy

Accepted Answer

A)   is producing below its capacity.
B)   is above its production capacity.
C)   reaches its capacity.
D)   Any of the above can be correctE) B) and C)
F) A) and D)

Question 17

Which of the following causes a movement along the aggregate demand curve?

Accepted Answer

A)   a fall in wages
B)   an increase in prices
C)   an increase in government spending
D)   a decrease in taxesE) None of the above
F) All of the above

Question 18

If there is a decrease in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become

Accepted Answer

A)   steeper.
B)   flatter.
C)   horizontal.
D)   vertical.E) B) and C)
F) None of the above

Question 19

If the combination r = 5% and Y = $100 billion is on the Fed rule line, we know that the combination r = 7% and Y = $100 billion would represent

Accepted Answer

A)   the Fed rule shifting to the right.
B)   the Fed rule shifting to the left.
C)   a movement up the Fed rule.
D)   a movement down the Fed rule.E) C) and D)
F) B) and C)

Question 20

Each point on the IS curve represents ________ in the goods market for the given interest rate.

Accepted Answer

A)   maximum investment
B)   an equilibrium point
C)   a positive relationship between the price level and aggregate output
D)   minimum pricingE) A) and B)
F) B) and C) B

Exam 26: The Determination of Aggregate Output, the Price Level, and the Interest Rate

The Federal Reserve's policy to "lean against the wind" means that

Correct AnswerverifiedShow Answer

________ shifts the Fed rule to the left.

Correct AnswerverifiedShow Answer

If the economy produces full employment output, an increase in government spending increases output but not the price level.

Correct AnswerverifiedShow Answer

The level of aggregate output that can be sustained in the long run without inflation is known as

Correct AnswerverifiedShow Answer

All of the following shift the short-run aggregate supply curve except

Correct AnswerverifiedShow Answer

Other things equal, a decrease in government spending shifts

Correct AnswerverifiedShow Answer

Related to the Economics in Practice on p. 543: Which measure of the aggregate price level does the Fed consider the most important?

Correct AnswerverifiedShow Answer

The level of output determined by the intersection of the short-run aggregate supply curve and the aggregate demand curve

Correct AnswerverifiedShow Answer

Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause

Correct AnswerverifiedC

If the economy is operating way below capacity, an increase in aggregate demand causes a ________ change in the price level and ________ change in output.

Correct AnswerverifiedShow Answer

The IS curve shows combinations of output and interest rates consistent with equilibrium in the goods market.

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 26.4 below to answer the question(s) that follow. Figure 26.4 -Refer to Figure 26.4. Which of the following causes the economy to move from Point A to Point E?

Correct AnswerverifiedA

When the ________ decreases, then potential output decreases.

Correct AnswerverifiedShow Answer

If the price level falls, the aggregate supply increases as a result of the aggregate demand curve shifting left.

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2 -Refer to Figure 26.2. This economy reaches capacity at

Correct AnswerverifiedShow Answer

Refer to the information provided in Figure 26.2 below to answer the question(s) that follow. Figure 26.2 -Refer to Figure 26.2. At $900 billion, this economy

Correct AnswerverifiedShow Answer

Which of the following causes a movement along the aggregate demand curve?

Correct AnswerverifiedShow Answer

If there is a decrease in the percentage of employees whose wages adjust automatically with changes in the price level, the aggregate supply curve will become

Correct AnswerverifiedShow Answer

If the combination r = 5% and Y = $100 billion is on the Fed rule line, we know that the combination r = 7% and Y = $100 billion would represent

Correct AnswerverifiedShow Answer

Each point on the IS curve represents ________ in the goods market for the given interest rate.

Correct AnswerverifiedB

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C

If the economy is operating way below capacity, an increase in aggregate demand causes a change in the price level and change in output.

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A

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B