Question 1

Figure 33-4 
-Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

Accepted Answer

A)   stays at A.
B)   moves to B.
C)   moves to C.
D)   moves to D.E) B) and D)
F) None of the above

Question 2

Other things the same, if the price level falls, people

Accepted Answer

A)   increase foreign bond purchases, so the dollar appreciates.
B)   increase foreign bond purchases, so the dollar depreciates.
C)   increase domestic bond purchases, so the dollar appreciates.
D)   increase domestic bond purchases, so the dollar depreciates.E) A) and B)
F) B) and C)

Question 3

During a recession the economy experiences

Accepted Answer

A)   rising income and unemployment.
B)   rising income and falling unemployment.
C)   falling income and rising unemployment.
D)   falling income and unemployment.E) A) and C)
F) A) and B)

Question 4

Other things the same, a decrease in the price level makes the dollars people hold worth

Accepted Answer

A)   more, so they can buy more.
B)   more, so they can buy less.
C)   less, so they can buy more.
D)   less, so they can buy less.E) A) and B)
F) None of the above

Question 5

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Accepted Answer

A) True 
 B)False

Question 6

When the price level falls

Accepted Answer

A)   The interest rate falls because people will want to hold more money and so sell bonds.
B)   Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.
C)   Both A and B are correct.
D)   None of the above are correct.E) A) and D)
F) A) and C)

Question 7

The equation: quantity of output supplied = natural rate of output + aactual price level - expected price level) , where a is a positive number, represents

Accepted Answer

A)   an upward-sloping short-run aggregate supply curve
B)   a vertical short-run aggregate supply curve
C)   a downward-sloping aggregate demand curve
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 8

Who is credited for the original development of the model of aggregate demand and aggregate supply?

Accepted Answer

The answer of Who is credited for the original development...

Question 9

John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.

Accepted Answer

A) True 
 B)False

Question 10

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

Accepted Answer

A)   decreases in both the price level and real GDP.
B)   an increase in real GDP and an increase in the price level.
C)   a decrease in the price level but does not change real GDP.
D)   an increase in the price level but does not change real GDP.E) B) and C)
F) A) and D)

Question 11

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) A) and B)
F) B) and D)

Question 12

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Accepted Answer

A)   rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
B)   fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.
C)   rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
D)   fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.E) None of the above
F) B) and C)

Question 13

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Accepted Answer

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

Question 14

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run

Accepted Answer

A)   the price level and real GDP will both rise.
B)   the price level and real GDP will both fall.
C)   neither the price leave nor real GDP will change.
D)   All of the above are possible.E) A) and B)
F) A) and C)

Question 15

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Accepted Answer

A) True 
 B)False

Question 16

As the price level falls

Accepted Answer

A)   people will want to hold more money, so the interest rate rises.
B)   people will want to hold more money, so the interest rate falls.
C)   people will want to hold less money, so the interest rate falls.
D)   people will want to hold less money, so the interest rate rises.E) C) and D)
F) A) and C)

Question 17

When the dollar depreciates, U.S.

Accepted Answer

A)   exports and imports increase.
B)   exports increase, while imports decrease.
C)   exports decrease, while imports increase.
D)   exports and imports decrease.E) None of the above
F) C) and D)

Question 18

Which part of real GDP fluctuates most over the course of the business cycle?

Accepted Answer

A)   consumption expenditures
B)   government expenditures
C)   investment expenditures
D)   net exportsE) A) and B)
F) A) and C)

Question 19

If the price level falls, the real value of a dollar

Accepted Answer

A)   rises, so people will want to buy more.
B)   rises, so people will want to buy less.
C)   falls, so people will want to buy more.
D)   falls, so people will want to buy less.E) B) and D)
F) C) and D)

Question 20

Figure 33-7. 
-Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   short-run aggregate supply right.
D)   short-run aggregate supply left.E) A) and B)
F) A) and C)

Exam 20: Aggregate Demand and Aggregate Supply

If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return towards its natural rate, but prices would rise even more.

Correct AnswerverifiedShow Answer

The equation: quantity of output supplied = natural rate of output + aactual price level - expected price level) , where a is a positive number, represents

Correct AnswerverifiedShow Answer

Figure 33-4 -Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

Correct AnswerverifiedShow Answer

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

Correct AnswerverifiedShow Answer

Who is credited for the original development of the model of aggregate demand and aggregate supply?

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Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run

Correct AnswerverifiedShow Answer

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

Correct AnswerverifiedShow Answer

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

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If the price level falls, the real value of a dollar

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When the price level falls

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Other things the same, if the price level falls, people

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Other things the same, a decrease in the price level makes the dollars people hold worth

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During a recession the economy experiences

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As the price level falls

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John Maynard Keynes advocated policies that would increase aggregate demand as a way to decrease unemployment caused by recessions.

Correct AnswerverifiedShow Answer

Which part of real GDP fluctuates most over the course of the business cycle?

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When the dollar depreciates, U.S.

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Figure 33-7. -Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts

Correct AnswerverifiedShow Answer

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

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