Question 1

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Accepted Answer

A) True 
 B)False

Question 2

Other things the same,as the price level falls,

Accepted Answer

A)   the dollar depreciates.
B)   the interest rate rises.
C)   people feel less wealthy.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 3

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.E) A) and D)
F) All of the above

Question 4

The effects of a higher than expected price level are shown by

Accepted Answer

A)   shifting the short-run aggregate supply curve right.
B)   shifting the short-run aggregate supply curve left.
C)   moving to the right along a given aggregate supply curve.
D)   moving to the left along a given aggregate supply curve.E) B) and D)
F) None of the above

Question 5

Changes in the price level affect which components of aggregate demand?

Accepted Answer

A)   only consumption and investment
B)   only consumption and net exports
C)   only investment
D)   consumption,investment,and net exportsE) B) and C)
F) A) and D)

Question 6

Which of the following shifts short-run aggregate supply right?

Accepted Answer

A)   an increase in the minimum wage
B)   an increase in immigration from abroad
C)   an increase in the price of oil
D)   an increase in the actual price levelE) None of the above
F) B) and C)

Question 7

Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.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.E) None of the above
F) A) and D)

Question 8

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.E) C) and D)
F) B) and D)

Question 9

Most economists believe that classical macroeconomic theory is a good description of the economy

Accepted Answer

A)   in neither the short nor long run.
B)   in the short run and in the long run.
C)   in the short run,but not in the long run.
D)   in the long run,but not in the short run.E) B) and C)
F) A) and B)

Question 10

The recessions associated with the business cycle come at regular intervals.

Accepted Answer

A) True 
 B)False

Question 11

Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business

Accepted Answer

A)   Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve.
B)   Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.
C)   Reducing the minimum wage would shift long-run aggregate supply to the right.Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve.
D)   Reducing the minimum wage would have no affect on the long-run aggregate supply curve.Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right.E) A) and B)
F) B) and C)

Question 12

Which of the following is correct?

Accepted Answer

A)   The short-run,but not the long-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
B)   The long-run,but not the short-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
C)   The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables.
D)   Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.E) A) and B)
F) B) and D)

Question 13

An increase in the price level and a reduction in output would result from

Accepted Answer

A)   a fall in stock prices.
B)   natural disasters such as hurricanes,floods,and droughts.
C)   declining government expenditures.
D)   tax rebates.E) A) and C)
F) A) and B)

Question 14

Keynes believed that economies experiencing high unemployment should adopt policies to

Accepted Answer

A)   reduce the money supply.
B)   reduce government expenditures.
C)   increase aggregate demand.
D)   increase aggregate supply.E) A) and B)
F) B) and C)

Question 15

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 16

The long-run aggregate supply curve

Accepted Answer

A)   is vertical.
B)   is a graphical representation of the classical dichotomy.
C)   indicates monetary neutrality in the long run.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 17

When the price level changes,which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

Accepted Answer

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

Question 18

An economic contraction caused by a shift in aggregate demand causes prices to

Accepted Answer

A)   rise in the short run,and rise even more in the long run.
B)   rise in the short run,and fall back to their original level in the long run.
C)   fall in the short run,and fall even more in the long run.
D)   fall in the short run,and rise back to their original level in the long run.E) B) and C)
F) A) and C)

Question 19

Most economist agree that money changes real GDP in both the short and long run.

Accepted Answer

A) True 
 B)False

Question 20

As the price level rises

Accepted Answer

A)   people will want to buy more bonds,so the interest rate rises.
B)   people will want to buy fewer bonds,so the interest rate falls.
C)   people will want to buy more bonds,so the interest rate falls.
D)   people will want to buy fewer bonds,so the interest rate rises.E) All of the above
F) C) and D)

Exam 23: Aggregate Demand and Aggregate Supply

Most economists believe that classical macroeconomic theory is a good description of the economy

Correct AnswerverifiedShow Answer

The recessions associated with the business cycle come at regular intervals.

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The sticky-price theory implies that

Correct AnswerverifiedShow Answer

Increased optimism about the future leads to rising prices and falling unemployment in the short run.

Correct AnswerverifiedShow Answer

As the price level rises

Correct AnswerverifiedShow Answer

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

Most economist agree that money changes real GDP in both the short and long run.

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An increase in the price level and a reduction in output would result from

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The long-run aggregate supply curve

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Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business

Correct AnswerverifiedShow Answer

Keynes believed that economies experiencing high unemployment should adopt policies to

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

The effects of a higher than expected price level are shown by

Correct AnswerverifiedShow Answer

Changes in the price level affect which components of aggregate demand?

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Suppose the economy is in long-run equilibrium.Concerns about pollution cause the government to significantly restrict the production of electricity.At the same time,the value of the dollar falls.In the short-run

Correct AnswerverifiedShow Answer

Other things the same,as the price level falls,

Correct AnswerverifiedShow Answer

An economic contraction caused by a shift in aggregate demand causes prices to

Correct AnswerverifiedShow Answer

When the price level changes,which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?

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Which of the following is correct?

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Which of the following shifts short-run aggregate supply right?

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