Question 1

If the price level is higher than expected,firms might raise their production in the short run if

Accepted Answer

A)   the nominal wage they pay their employees was set based on the expected price level.
B)   prices are costly to adjust and they have set their price at some time in the past but are not ready to change it.
C)   they believe that the price of their product has risen relative to the price of other products,when in fact the rise in the price of their product reflects an increase in the general price level.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 2

Other things the same,the aggregate quantity of output supplied will decrease if the price level

Accepted Answer

A)   is lower than expected so that firms believe the relative price of their output has increased.
B)   is lower than expected so that firms believe the relative price of their output has decreased.
C)   is higher than expected so that firms believe the relative price of their output has increased.
D)   is higher than expected so that firms believe the relative price of their output has decreased.E) A) and D)
F) None of the above

Question 3

The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the explanations for the slopes of demand and supply curves for specific goods and services.

Accepted Answer

A) True 
 B)False

Question 4

Other things the same,the aggregate quantity of output supplied will increase if the price level

Accepted Answer

A)   is lower than expected so that firms believe the relative price of their output has increased.
B)   is lower than expected so that firms believe the relative price of their output has decreased.
C)   is higher than expected so that firms believe the relative price of their output has increased.
D)   is higher than expected so that firms believe the relative price of their output has decreased.E) B) and D)
F) B) and C)

Question 5

Stagflation exists when prices

Accepted Answer

A)   and output rise.
B)   rise and output falls.
C)   fall and output rises.
D)   and output fall.E) B) and C)
F) A) and B)

Question 6

In 2009 Congress passed legislation providing states with funds to build roads and bridges.It also instituted tax cuts.Which of these shifts aggregate demand right?

Accepted Answer

A)   only the increased funding for states
B)   only the tax cuts
C)   both the increased funding for states and the tax cuts
D)   neither the increased funding for states nor the tax cutsE) C) and D)
F) B) and D)

Question 7

Other things the same,continued increases in technology lead to

Accepted Answer

A)   continued increases in the price level and real GDP.
B)   continued increases in the price level but not continued increases in real GDP.
C)   continued increases in real GDP but not continued increases in the price level.
D)   None of the above are correct.E) A) and B)
F) A) and C)

Question 8

Consider the exhibit below for the following questions.
Figure 23-1 
-Refer to Figure 23-1.An increase in the money supply would move the economy from C to

Accepted Answer

A)   B in the short run and the long run.
B)   D in the short run and the long run.
C)   B in the short run and A in the long run.
D)   D in the short run and C in the long run.E) None of the above
F) B) and C)

Question 9

Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?

Accepted Answer

When the price level increases,the purch...

Question 10

Other things the same,a decrease in the price level causes the interest rate to

Accepted Answer

A)   increase,the dollar to appreciate,and net exports to increase.
B)   increase,the dollar to depreciate,and net exports to decrease.
C)   decrease,the dollar to depreciate,and net exports to increase.
D)   decrease,the dollar to appreciate,and net exports to decrease.E) C) and D)
F) A) and D)

Question 11

When looking at a graph of aggregate demand,which of the following is correct?

Accepted Answer

A)   There are nominal variables on both the vertical and the horizontal axes.
B)   There are real variables on both the vertical and horizontal axes.
C)   The variable on the vertical axis is nominal; the variable on the horizontal axis is real
D)   The variable on the vertical axis is real; the variable on the horizontal axis is nominalE) A) and B)
F) None of the above

Question 12

As recessions begin,production

Accepted Answer

A)   and unemployment both rise.
B)   rises and unemployment falls.
C)   falls and unemployment rises.
D)   and unemployment both fall.E) A) and B)
F) A) and C)

Question 13

Which of the following rises when the U.S.price level falls?

Accepted Answer

A)   interest rates
B)   the value of the dollar in the market for foreign-currency exchange
C)   real wealth
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 14

Other things the same,a fall in an economy's overall level of prices tends to

Accepted Answer

A)   raise both the quantity demanded and supplied of goods and services.
B)   raise the quantity demanded of goods and services,but lower the quantity supplied.
C)   lower the quantity demanded of goods and services,but raise the quantity supplied.
D)   lower both the quantity demanded and the quantity supplied of goods and services.E) None of the above
F) A) and D)

Question 15

Suppose a stock market crash makes people feel poorer.This decrease in wealth would induce people to

Accepted Answer

A)   decrease consumption,which shifts aggregate supply left.
B)   decrease consumption,which shifts aggregate demand left.
C)   increase consumption,which shifts aggregate supply right.
D)   increase consumption,which shifts aggregate demand right.E) A) and C)
F) B) and C)

Question 16

Historically,the change in real GDP during recessions has been

Accepted Answer

A)   mostly a change in investment spending.
B)   mostly a change in consumption spending.
C)   about equally divided between consumption and investment spending.
D)   sometimes mostly a change in consumption and sometimes mostly a change in investment.E) A) and C)
F) C) and D)

Question 17

The investment component of GDP measures spending on

Accepted Answer

A)   financial assets such as stocks and bonds.During recessions it declines by a relatively large amount.
B)   residential construction,business equipment,business structures,and changes in inventory.During recessions it declines by a relatively large amount.
C)   financial assets such as stocks and bonds.During recessions it declines by a relatively small amount.
D)   residential construction,business equipment,business structures,and changes in inventory.During recessions it declines by a relatively large amountE) All of the above
F) A) and B)

Question 18

The classical dichotomy and monetary neutrality are represented graphically by

Accepted Answer

A)   an upward-sloping long-run aggregate-supply curve.
B)   a vertical long-run aggregate-supply curve.
C)   an upward-sloping short-run aggregate-curve.
D)   a downward-sloping aggregate-demand curve.E) A) and C)
F) B) and D)

Question 19

Which of the following will both make people buy more?

Accepted Answer

A)   wealth and interest rates rise.
B)   wealth rises and interest rates fall.
C)   wealth falls and interest rates rise.
D)   wealth falls and interest rates fall.E) B) and C)
F) C) and D)

Question 20

Which of the following accounts for about two-thirds of the decline in output during a recession?

Accepted Answer

A)   the decline in consumption expenditures on consumer durables alone
B)   the decline in total consumption spending alone
C)   the decline in investment spending alone
D)   the combined decline in consumption and investment spendingE) A) and D)
F) B) and C)

Exam 23: Aggregate Demand and Aggregate Supply

The classical dichotomy and monetary neutrality are represented graphically by

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The investment component of GDP measures spending on

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Other things the same,the aggregate quantity of output supplied will decrease if the price level

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Which of the following accounts for about two-thirds of the decline in output during a recession?

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Historically,the change in real GDP during recessions has been

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In 2009 Congress passed legislation providing states with funds to build roads and bridges.It also instituted tax cuts.Which of these shifts aggregate demand right?

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Other things the same,continued increases in technology lead to

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Other things the same,a fall in an economy's overall level of prices tends to

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The explanations for the slopes of the aggregate demand and short-run aggregate supply curves are the same as the explanations for the slopes of demand and supply curves for specific goods and services.

Correct AnswerverifiedShow Answer

When looking at a graph of aggregate demand,which of the following is correct?

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If the price level is higher than expected,firms might raise their production in the short run if

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Which of the following will both make people buy more?

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Stagflation exists when prices

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Other things the same,the aggregate quantity of output supplied will increase if the price level

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Suppose a stock market crash makes people feel poorer.This decrease in wealth would induce people to

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Explain how an increase in the price level changes interest rates.How does this change in interest rates lead to changes in investment and net exports?

Correct AnswerverifiedWhen the price level increases,the purch...View AnswerShow Answer

Consider the exhibit below for the following questions. Figure 23-1 -Refer to Figure 23-1.An increase in the money supply would move the economy from C to

Correct AnswerverifiedShow Answer

As recessions begin,production

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Which of the following rises when the U.S.price level falls?

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Other things the same,a decrease in the price level causes the interest rate to

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When the price level increases,the purch...
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