Question 1

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Accepted Answer

A)  Both prices and GDP increase.
B)  Both prices and GDP decrease.
C)  Prices increase, and GDP decreases.
D)  Prices decrease, and GDP increases.E) B) and C)
F) A) and D)

Question 2

When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:

Accepted Answer

A)  $500 million.
B)  $250 million.
C)  $125 million.
D)  $750 million.E) A) and D)
F) None of the above A

Question 3

Ceteris paribus, a decrease in government expenditure leads to a:

Accepted Answer

A)  right shift of the aggregate demand curve.
B)  left shift of the aggregate demand curve.
C)  movement up and to the left along the same aggregate demand curve.
D)  movement down and to the right along the same aggregate demand curve.E) All of the above
F) C) and D)

Question 4

(Figure: Aggregate Supply)  Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual output is _____ potential output.

Accepted Answer

A)  increase; left; equal to.
B)  increase; left; equal to
C)  increase; right; greater than
D)  increase; right; greater than.
E)  decrease; right; equal toF) decrease; right; equal to.G) decrease; right; less than.H) decrease; right; less thanI) A) and B)
J) B) and G)

Question 5

The difference between total investment and planned investment is that:

Accepted Answer

A)  planned investment is total investment minus taxes.
B)  planned investment is always larger than total investment.
C)  total investment includes changes in inventories.
D)  planned investment includes changes in inventories.E) None of the above
F) A) and B)

Question 6

(Figure: Shift of the Aggregate Demand Curve)  Use Figure: Shift of the Aggregate Demand Curve. A movement from point B on AD1 to point E on AD2 may result from:

Accepted Answer

A)  an increase in consumer optimism
B)  an increase in consumer optimism.
C)  an increase in consumer pessimism.
D)  an increase in consumer pessimism
E)  an increase in personal income taxes.F) an increase in personal income taxesG) the central bank reducing the quantity of moneyH) the central bank reducing the quantity of money.I) B) and C)
J) B) and E)

Question 7

Explain the international trade effect on net exports when prices rise in the economy.

Accepted Answer

The answer of Explain the international trade effect on net...

Question 8

An output-induced monetary policy response to lower interest rates causes a:

Accepted Answer

A)  right shift of the aggregate supply curve.
B)  left shift of the aggregate demand curve.
C)  right shift of the aggregate demand curve.
D)  movement along the same aggregate demand curve.E) A) and B)
F) A) and C) C

Question 9

(Figure: Shift of the Aggregate Demand Curve)  Use Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 may result from a(n) :

Accepted Answer

A)  lower price level
B)  lower price level.
C)  higher price level
D)  higher price level.
E)  increase in aggregate spending.F) increase in aggregate spendingG) significant decrease in consumers' incomeH) significant decrease in consumers' income.I) B) and C)
J) G) and H)

Question 10

The stock market drops significantly. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Accepted Answer

A)  
B)  
C)  
D)  E) A) and D)
F) A) and C)

Question 11

Ceteris paribus, a decrease in imports leads to a:

Accepted Answer

A)  movement up and to the left along the same aggregate demand curve.
B)  movement down and to the right along the same aggregate demand curve.
C)  right shift of the aggregate demand curve.
D)  left shift of the aggregate demand curve.E) All of the above
F) None of the above C

Question 12

How does a reduction in corporate tax rates affect the economy in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Accepted Answer

The answer of How does a reduction in corporate tax...

Question 13

How does a depreciation of the Kenyan shilling affect aggregate demand in Kenya in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Accepted Answer

The answer of How does a depreciation of the Kenyan...

Question 14

Which policy will shift the AD curve to the left?

Accepted Answer

A)  an increase in government spending
B)  an increase in government spending.
C)  an increase in tax rates
D)  an increase in tax rates.
E)  an increase in the money supply.F) an increase in the money supplyG) a decrease in tax rates.H) a decrease in tax ratesI) B) and G)
J) All of the above

Question 15

An increase in government spending, all things equal, will cause the aggregate demand curve to:

Accepted Answer

A)  become positively sloped.
B)  become positively sloped
C)  remain constant
D)  remain constant.
E)  shift to the rightF) shift to the right.G) shift to the leftH) shift to the left.I) F) and G)
J) C) and G)

Question 16

If declining labor union membership causes workers to lose bargaining power, resulting in lower wages, production costs will:

Accepted Answer

A)  increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level.
B)  increase, and the SRAS curve will shift to the left, decreasing equilibrium GDP and the aggregate price level
C)  fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall
D)  fall, there will be a downward movement along the SRAS curve, equilibrium GDP will increase, and the aggregate price level will fall.
E)  not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price levelF) not change, and the AD curve will shift to the right, increasing equilibrium GDP and the aggregate price level.G) fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.H) fall, and the SRAS curve will shift to the right, increasing equilibrium GDP and lowering the aggregate price levelI) C) and F)
J) A) and B)

Question 17

Create four graphs that illustrate the four stages of the adjustment of the aggregate supply curve from the very short run to long run when there is a negative aggregate demand shock.

Accepted Answer

The answer of Create four graphs that illustrate the four...

Question 18

How does the economy adjust from the short run to the long run when there is a negative demand side shock to the economy?

Accepted Answer

The answer of How does the economy adjust from the...

Question 19

The short-run aggregate supply curve has a _____ slope, showing that increases in the price level will _____ the quantity of aggregate output supplied by firms.

Accepted Answer

A)  positive: increase
B)  positive: increase.
C)  positive; decrease
D)  positive; decrease.
E)  negative; increaseF) negative; increase.G) negative; decreaseH) negative; decrease.I) B) and D)
J) E) and G)

Question 20

Suppose that the Federal Reserve engages in contractionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

Accepted Answer

A)  
B)  
C)  
D)  E) B) and D)
F) None of the above

Exam 33: Aggregate Demand and Aggregate Supply

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Correct AnswerverifiedShow Answer

When government expenditure rises by $250 million and the multiplier is 2, then ceteris paribus, GDP will eventually rise by:

Correct AnswerverifiedA

Ceteris paribus, a decrease in government expenditure leads to a:

Correct AnswerverifiedShow Answer

(Figure: Aggregate Supply) Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual output is _____ potential output.

Correct AnswerverifiedShow Answer

The difference between total investment and planned investment is that:

Correct AnswerverifiedShow Answer

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point B on AD1 to point E on AD2 may result from:

Correct AnswerverifiedShow Answer

Explain the international trade effect on net exports when prices rise in the economy.

Correct AnswerverifiedShow Answer

An output-induced monetary policy response to lower interest rates causes a:

Correct AnswerverifiedC

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 may result from a(n) :

Correct AnswerverifiedShow Answer

The stock market drops significantly. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Correct AnswerverifiedShow Answer

Ceteris paribus, a decrease in imports leads to a:

Correct AnswerverifiedC

How does a reduction in corporate tax rates affect the economy in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Correct AnswerverifiedShow Answer

How does a depreciation of the Kenyan shilling affect aggregate demand in Kenya in the AD-AS framework? Draw a graph of the AD-AS framework to illustrate your answer.

Correct AnswerverifiedShow Answer

Which policy will shift the AD curve to the left?

Correct AnswerverifiedShow Answer

An increase in government spending, all things equal, will cause the aggregate demand curve to:

Correct AnswerverifiedShow Answer

If declining labor union membership causes workers to lose bargaining power, resulting in lower wages, production costs will:

Correct AnswerverifiedShow Answer

Create four graphs that illustrate the four stages of the adjustment of the aggregate supply curve from the very short run to long run when there is a negative aggregate demand shock.

Correct AnswerverifiedShow Answer

How does the economy adjust from the short run to the long run when there is a negative demand side shock to the economy?

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve has a _____ slope, showing that increases in the price level will _____ the quantity of aggregate output supplied by firms.

Correct AnswerverifiedShow Answer

Suppose that the Federal Reserve engages in contractionary monetary policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

Correct AnswerverifiedShow Answer

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A

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(Figure: Aggregate Supply) Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will ___, and the short-run aggregate supply curve will shift _ until actual output is ___ potential output.

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C

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C

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The short-run aggregate supply curve has a _ slope, showing that increases in the price level will _ the quantity of aggregate output supplied by firms.

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