Question 1

In the context of aggregate demand and aggregate supply,the wealth effect refers to the idea that,when the price level decreases,the real wealth of households

Accepted Answer

A)   increases and as a result consumption spending increases.This effect contributes to the downward slope of the aggregate-demand curve.
B)   decreases and as a result consumption spending increases.This effect contributes to the upward slope of the aggregate-supply curve.
C)   increases and as a result households increase their money holdings;in turn,interest rates increase and investment spending decreases.This effect contributes to the downward slope of the aggregate-demand curve.
D)   decreases and as a result households increase their money holdings;in turn,interest rates increase and investment spending decreases.This effect contributes to the upward slope of the aggregate-supply curve.

Question 2

Figure 20-2. 1 to AS2 A)  could be caused by an outbreak of war in the Middle East. B)  could be caused by a decrease in the expected price level. C)  causes the economy to experience an increase in the unemployment rate. D)  causes the economy to experience stagflation." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 20-2.The shift of the short-run aggregate-supply curve from AS1 to AS2

Accepted Answer

A)   could be caused by an outbreak of war in the Middle East.
B)   could be caused by a decrease in the expected price level.
C)   causes the economy to experience an increase in the unemployment rate.
D)   causes the economy to experience stagflation.

Question 3

Suppose the economy is in long-run equilibrium.Senator A succeeds in getting taxes raised.At the same time,Senator B succeeds in getting major new restrictions on logging enacted.In the short run

Accepted Answer

A)   real GDP will rise and the price level might rise,fall,or stay the same.
B)   real GDP will fall and the price level might rise,fall,or stay the same.
C)   the price level will rise,and real GDP might rise,fall,or stay the same.
D)   the price level will fall,and real GDP might rise,fall,or stay the same.

Question 4

In the aggregate demand and aggregate supply model,the point where the aggregate demand curve crosses the long run aggregate supply curve,and the expected price level equals the actual price level,is known as what?

Accepted Answer

Long run e...

Question 5

Other things the same,a decrease in the price level causes real wealth to

Accepted Answer

A)   fall,interest rates to fall,and the dollar to appreciate.
B)   fall,interest rates to rise,and the dollar to depreciate.
C)   rise,interest rates to rise,and the dollar to appreciate.
D)   rise,interest rates to fall,and the dollar to depreciate.

Question 6

If there are floods or droughts or a decrease in the availability of raw materials

Accepted Answer

A)   aggregate supply shifts right.
B)   output falls in the short run.
C)   prices fall in the short run.
D)   None of the above is correct.

Question 7

The sticky-price theory implies that

Accepted Answer

A)   the short-run aggregate-supply curve is upward-sloping.
B)   an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.
C)   menu costs influence the speed of adjustment of prices.
D)   All of the above are correct.

Question 8

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that raise the cost of electricity production.In the short run

Accepted Answer

A)   the price level will rise and real GDP will fall.
B)   the price level will fall and real GDP will rise.
C)   the price level and real GDP will both stay the same.
D)   All of the above are possible.

Question 9

Suppose the economy is in long-run equilibrium.If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions,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.

Question 10

In response to a decrease in output,the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 11

A decrease in the expected price level shifts short-run aggregate supply to the

Accepted Answer

A)   right,and an increase in the actual price level shifts short-run aggregate supply to the right.
B)   right,and an increase in the actual price level does not shift short-run aggregate supply.
C)   left,and an increase in the actual price level shifts short-run aggregate supply to the left.
D)   left,and an increase in the actual price level does not shift short-run aggregate supply.

Question 12

The classical model is appropriate for analysis of the economy in the

Accepted Answer

A)   long run,since evidence indicates that money is not neutral in the long run.
B)   long run,since real and nominal variables are essentially determined separately in the long run.
C)   short run,provided money is not neutral.
D)   short run,provided real and nominal variables are highly intertwined.

Question 13

Aggregate demand shifts to the left if the money supply increases.

Accepted Answer

A) True 
 B)False

Question 14

According to the aggregate demand and aggregate supply model,in the long run an increase in the money supply leads to

Accepted Answer

A)   increases in both the price level and real GDP.
B)   an increase in real GDP but does not change the price level.
C)   an increase in the price level but does not change real GDP.
D)   no change in either the price level or real GDP.

Question 15

As the price level rises,the exchange rate

Accepted Answer

A)   falls,so exports rise and imports fall.
B)   falls,so exports fall and imports rise.
C)   rises,so exports rise and imports fall.
D)   rises,so exports fall and imports rise.

Question 16

Although wages,incomes,and interest rates are most often discussed in nominal terms,what matters most are their real values.

Accepted Answer

A) True 
 B)False

Question 17

In which case can we be sure that real GDP rises in the short run?

Accepted Answer

A)   foreign economies expand and the money supply increases
B)   foreign economies expand and the money supply decreases
C)   foreign economies contract and the money supply decreases
D)   None of the above are correct.

Question 18

Figure 33-2. 1 and Y1 ,then it must be the case that A)  short run aggregate supply has decreased. B)  short run aggregate supply has increased. C)  aggregate demand has increased. D)  aggregate demand has decreased." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 33-2.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P1 and Y1 ,then it must be the case that

Accepted Answer

A)   short run aggregate supply has decreased.
B)   short run aggregate supply has increased.
C)   aggregate demand has increased.
D)   aggregate demand has decreased.

Question 19

During a recession the economy experiences

Accepted Answer

A)   rising employment and income.
B)   rising employment and falling income.
C)   rising income and falling employment.
D)   falling employment and income.

Question 20

Menu costs help explain

Accepted Answer

A)   sticky-price theory.
B)   misperceptions theory.
C)   sticky-wage theory.
D)   All of the above are correct.

Exam 33: Aggregate Demand and Aggregate Supply

Figure 33-2. -Refer to Figure 33-2.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P1 and Y1 ,then it must be the case that

Correct AnswerverifiedShow Answer

Although wages,incomes,and interest rates are most often discussed in nominal terms,what matters most are their real values.

Correct AnswerverifiedShow Answer

The sticky-price theory implies that

Correct AnswerverifiedShow Answer

The classical model is appropriate for analysis of the economy in the

Correct AnswerverifiedShow Answer

Menu costs help explain

Correct AnswerverifiedShow Answer

Figure 20-2. -Refer to Figure 20-2.The shift of the short-run aggregate-supply curve from AS1 to AS2

Correct AnswerverifiedShow Answer

Other things the same,a decrease in the price level causes real wealth to

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 pessimism about future business conditions,then in the short run,real GDP will

Correct AnswerverifiedShow Answer

In which case can we be sure that real GDP rises in the short run?

Correct AnswerverifiedShow Answer

During a recession the economy experiences

Correct AnswerverifiedShow Answer

As the price level rises,the exchange rate

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium.Senator A succeeds in getting taxes raised.At the same time,Senator B succeeds in getting major new restrictions on logging enacted.In the short run

Correct AnswerverifiedShow Answer

In response to a decrease in output,the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Correct AnswerverifiedShow Answer

In the context of aggregate demand and aggregate supply,the wealth effect refers to the idea that,when the price level decreases,the real wealth of households

Correct AnswerverifiedShow Answer

According to the aggregate demand and aggregate supply model,in the long run an increase in the money supply leads to

Correct AnswerverifiedShow Answer

A decrease in the expected price level shifts short-run aggregate supply to the

Correct AnswerverifiedShow Answer

In the aggregate demand and aggregate supply model,the point where the aggregate demand curve crosses the long run aggregate supply curve,and the expected price level equals the actual price level,is known as what?

Correct AnswerverifiedLong run e...View AnswerShow Answer

Aggregate demand shifts to the left if the money supply increases.

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium.In a short span of time,there is a sharp increase in the minimum wage,a major new discovery of oil,a large influx of immigrants,and new environmental regulations that raise the cost of electricity production.In the short run

Correct AnswerverifiedShow Answer

If there are floods or droughts or a decrease in the availability of raw materials

Correct AnswerverifiedShow Answer

Figure 33-2. -Refer to Figure 33-2.Suppose the economy starts at Z.If changes occur that move the economy to a new short run equilibrium of P₁ and Y₁,then it must be the case that

Correct Answer
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Figure 20-2. -Refer to Figure 20-2.The shift of the short-run aggregate-supply curve from AS₁ to AS₂

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Long run e...
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