Question 1

The short-run aggregate supply curve may shift to the right if:

Accepted Answer

A)   productivity increases.
B)   nominal wages increase.
C)   personal income taxes decrease.
D)   commodity prices rise.E) All of the above
F) A) and D)

Question 2

If the price level falls by 10%, the purchasing power of $10,000 will:

Accepted Answer

A)   increase to $11,000.
B)   decrease to $9,000.
C)   decrease to $1,000.
D)   remain constant.E) B) and C)
F) All of the above

Question 3

Suppose the economy is in a short-run equilibrium and actual output is greater than potential output. The economy is in:

Accepted Answer

A)   an inflationary gap; nominal wages will increase and SRAS will shift to the left until actual GDP is equal to potential GDP in the long run.
B)   a recessionary gap; nominal wages will decrease and AD will shift to the left until actual GDP is equal to potential GDP in the long run.
C)   an inflationary gap; prices of goods will increase and AD will shift to the right until the economy is in long-run equilibrium.
D)   a recessionary gap; prices of goods will decrease and LRAS will shift to the left until the economy is in long-run equilibrium.E) B) and C)
F) All of the above

Question 4

A decrease in the supply of money shifts the aggregate _____ curve to the _____.

Accepted Answer

A)   supply; left
B)   supply; right
C)   demand; left
D)   demand; rightE) C) and D)
F) None of the above

Question 5

A simultaneous rise in productivity and nominal wages would shift the short-run aggregate supply curve to the:

Accepted Answer

A)   right if the rise in nominal wages is larger than the rise in productivity.
B)   right if the cost per unit of output rises.
C)   left if the cost per unit of output falls.
D)   left if the rise in nominal wages is larger than the rise in productivity.E) B) and D)
F) A) and B)

Question 6

Aggregate demand will increase if:

Accepted Answer

A)   the public becomes more optimistic.
B)   the aggregate price level falls.
C)   government spending is reduced.
D)   household wealth decreases.E) A) and D)
F) A) and C)

Question 7

The economy is in a recession. The desired FISCAL policy is a(n) :

Accepted Answer

A)   decrease in government transfer payments.
B)   increase in government purchases of goods and services.
C)   increase in tax rates.
D)   decrease in interest rates.E) A) and B)
F) A) and C)

Question 8

If nominal wages fall, then the short-run aggregate _____ curve shifts to the _____.

Accepted Answer

A)   supply; right
B)   supply; left
C)   demand; right
D)   demand; leftE) A) and D)
F) None of the above

Question 9

The intersection of an economy's aggregate demand and long-run aggregate supply curves:

Accepted Answer

A)   determines its equilibrium real GDP in both the long run and the short run.
B)   determines its equilibrium price level in both the long run and the short run.
C)   occurs at the economy's potential output in long-run equilibrium.
D)   occurs at high levels of cyclical unemployment.E) B) and D)
F) None of the above

Question 10

Which factor would shift the aggregate demand curve to the LEFT?

Accepted Answer

A)   monetary policy that raises the interest rate
B)   an increase in the aggregate price level
C)   an increase in consumer wealth
D)   stronger consumer optimism about incomeE) All of the above
F) None of the above

Question 11

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps 1 in panel (b) : A)  is equal to potential output. B)  reveals an inflationary gap compared with Yp. C)  is a long-run equilibrium. D)  is caused by flexible wages and prices." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Inflationary and Recessionary Gaps)  Refer to Figure: Inflationary and Recessionary Gaps. The level of income associated with Y1 in panel (b) :

Accepted Answer

A)   is equal to potential output.
B)   reveals an inflationary gap compared with Yp.
C)   is a long-run equilibrium.
D)   is caused by flexible wages and prices.E) B) and D)
F) C) and D)

Question 12

Graphically, a recessionary gap is measured as the:

Accepted Answer

A)   difference between the actual price level and the equilibrium price level.
B)   difference between actual GDP and potential output.
C)   vertical distance between aggregate demand and aggregate supply at actual real GDP.
D)   vertical distance between aggregate demand and aggregate supply at potential output.E) None of the above
F) B) and C)

Question 13

The aggregate supply curve shows the relationship between the _____ and the quantity of aggregate output supplied.

Accepted Answer

A)   price of oil
B)   aggregate price level
C)   price of money
D)   level of employmentE) All of the above
F) None of the above

Question 14

In the long run, wages and prices are considered to be:

Accepted Answer

A)   sticky.
B)   constant.
C)   flexible.
D)   irrelevant.E) C) and D)
F) B) and D)

Question 15

Using monetary policy to address a recessionary gap caused by a supply shock involves _____ to _____.

Accepted Answer

A)   decreasing the money supply; lower the aggregate price level
B)   increasing interest rates; decrease investment spending
C)   decreasing interest rates; lower the aggregate price level
D)   increasing the money supply; lower the unemployment rateE) C) and D)
F) A) and B)

Question 16

In the long run, nominal wages are:

Accepted Answer

A)   sticky downward but flexible upward.
B)   sticky upward but flexible downward.
C)   sticky both upward and downward.
D)   flexible, because contracts and informal agreements are renegotiated in the long run.E) B) and D)
F) C) and D)

Question 17

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps 
-(Figure: Inflationary and Recessionary Gaps)  Refer to Figure: Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b)  indicates:

Accepted Answer

A)   a short-run equilibrium.
B)   a long-run equilibrium.
C)   that unemployment is too high.
D)   stagflation.E) B) and C)
F) A) and C)

Question 18

Use the following to answer questions:
Figure: An Increase in Aggregate Demand P and P1. Now suppose that there is an increase in the level of government purchases at each price level. This will: A)  shift the aggregate demand curve from AD2 to AD1. B)  shift the aggregate demand curve from AD1 to AD2. C)  lead to increased output and a decrease in the price level. D)  lead to decreased output and a decreased price level." class="answers-bank-image d-inline" rel="preload" >
-(Figure: An Increase in Aggregate Demand)  Refer to Figure: An Increase in Aggregate Demand. Assume that the economy is initially in long-run equilibrium at YP and P1. Now suppose that there is an increase in the level of government purchases at each price level. This will:

Accepted Answer

A)   shift the aggregate demand curve from AD2 to AD1.
B)   shift the aggregate demand curve from AD1 to AD2.
C)   lead to increased output and a decrease in the price level.
D)   lead to decreased output and a decreased price level.E) None of the above
F) All of the above

Question 19

Use the following to answer questions:
Figure: Policy Alternatives 1. The economy will correct itself: A)  rapidly, without use of fiscal policy. B)  in the long run as wages fall. C)  in the short run as wages rise. D)  because the aggregate demand curve shifts." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Policy Alternatives)  Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a)  is in short-run equilibrium at a real GDP level of Y1. The economy will correct itself:

Accepted Answer

A)   rapidly, without use of fiscal policy.
B)   in the long run as wages fall.
C)   in the short run as wages rise.
D)   because the aggregate demand curve shifts.E) A) and C)
F) A) and B)

Question 20

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____.

Accepted Answer

A)   interest rate; aggregate demand; downward
B)   wealth; aggregate demand; downward
C)   interest rate; investment demand; downward
D)   wealth; short-run aggregate supply; upwardE) B) and D)
F) A) and B)

Exam 12: Aggregate Demand and Aggregate Supply

Which factor would shift the aggregate demand curve to the LEFT?

Correct Answer
verified

Using monetary policy to address a recessionary gap caused by a supply shock involves _ to _.

Correct Answer
verified

Suppose the economy is in a short-run equilibrium and actual output is greater than potential output. The economy is in:

Correct Answer
verified

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the ___ effect, is a reason the _ curve slopes ___.

Correct Answer
verified

In the long run, nominal wages are:

Correct Answer
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If the price level falls by 10%, the purchasing power of $10,000 will:

Correct Answer
verified

If nominal wages fall, then the short-run aggregate _ curve shifts to the _.

Correct Answer
verified

Aggregate demand will increase if:

Correct Answer
verified

Graphically, a recessionary gap is measured as the:

Correct Answer
verified

The aggregate supply curve shows the relationship between the _____ and the quantity of aggregate output supplied.

Correct Answer
verified

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:

Correct Answer
verified

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The level of income associated with Y₁ in panel (b) :

Correct Answer
verified

The intersection of an economy's aggregate demand and long-run aggregate supply curves:

Correct Answer
verified

Correct Answer
verified

The economy is in a recession. The desired FISCAL policy is a(n) :

Correct Answer
verified

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium at a real GDP level of Y₁. The economy will correct itself:

Correct Answer
verified

In the long run, wages and prices are considered to be:

Correct Answer
verified

The short-run aggregate supply curve may shift to the right if:

Correct Answer
verified

A decrease in the supply of money shifts the aggregate _ curve to the _.

Correct Answer
verified

A simultaneous rise in productivity and nominal wages would shift the short-run aggregate supply curve to the:

Correct Answer
verified

Exam 12: Aggregate Demand and Aggregate Supply

Which factor would shift the aggregate demand curve to the LEFT?

Correct AnswerverifiedShow Answer

Using monetary policy to address a recessionary gap caused by a supply shock involves _____ to _____.

Correct AnswerverifiedShow Answer

Suppose the economy is in a short-run equilibrium and actual output is greater than potential output. The economy is in:

Correct AnswerverifiedShow Answer

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the _____ effect, is a reason the _____ curve slopes _____.

Correct AnswerverifiedShow Answer

In the long run, nominal wages are:

Correct AnswerverifiedShow Answer

If the price level falls by 10%, the purchasing power of $10,000 will:

Correct AnswerverifiedShow Answer

If nominal wages fall, then the short-run aggregate _____ curve shifts to the _____.

Correct AnswerverifiedShow Answer

Aggregate demand will increase if:

Correct AnswerverifiedShow Answer

Graphically, a recessionary gap is measured as the:

Correct AnswerverifiedShow Answer

The aggregate supply curve shows the relationship between the _____ and the quantity of aggregate output supplied.

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The level of income associated with Y1 in panel (b) :

Correct AnswerverifiedShow Answer

The intersection of an economy's aggregate demand and long-run aggregate supply curves:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The economy is in a recession. The desired FISCAL policy is a(n) :

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium at a real GDP level of Y1. The economy will correct itself:

Correct AnswerverifiedShow Answer

In the long run, wages and prices are considered to be:

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve may shift to the right if:

Correct AnswerverifiedShow Answer

A decrease in the supply of money shifts the aggregate _____ curve to the _____.

Correct AnswerverifiedShow Answer

A simultaneous rise in productivity and nominal wages would shift the short-run aggregate supply curve to the:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Using monetary policy to address a recessionary gap caused by a supply shock involves _ to _.

Correct Answer
verified

Correct Answer
verified

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This, the ___ effect, is a reason the _ curve slopes ___.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If nominal wages fall, then the short-run aggregate _ curve shifts to the _.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. The level of income associated with Y₁ in panel (b) :

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium at a real GDP level of Y₁. The economy will correct itself:

Correct Answer
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Correct Answer
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Correct Answer
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A decrease in the supply of money shifts the aggregate _ curve to the _.

Correct Answer
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Correct Answer
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