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Exam 23: Real Gdp and the Price Level in the Short Run

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Question 71

Multiple Choice

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If the economy's AS curve is completely horizontal,the multiplier in the AD/AS model is

A) infinitely large.
B) equal to the simple multiplier.
C) smaller than the simple multiplier.
D) is zero.
E) negative.

F) A) and C)
G) A) and E)

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Question 72

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If the economy's AS curve is upward sloping,a negative shock to aggregate demand will result in

A) an increase in prices and no change in real GDP.
B) a decrease in prices but no change in real GDP.
C) an increase in real GDP and no change in prices.
D) an increase in both real GDP and prices.
E) a decrease in both real GDP and prices.

F) A) and B)
G) A) and C)

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Question 73

Multiple Choice

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Suppose there is an exogenous increase in the domestic price level.Which of the individuals listed below would experience an increase in wealth?

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

Which of the following could cause a leftward shift of the aggregate demand (AD) curve?

Consider the AD/AS model in which the price level varies.In this case,the multiplier is ________ the simple multiplier.

Consider the basic AD/AS model.Suppose that high-school graduates have better computing skills than did graduates in the past,resulting in an increase in average labour productivity.This change will

FIGURE 23-1 Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P₀.The corresponding point on the aggregate demand curve is point

In building a macro model with an AS curve,it is assumed that producers will

FIGURE 23-1 Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P₀.Now,suppose the AE curve shifts to AE² and we move to a new equilibrium level of GDP at Y₂ and point C on AD⁰.A possible cause of this change in equilibrium is

Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to increase if

The economy's AS curve is often assumed to be relatively flat at low levels of real GDP.The underlying reasoning is that

Which of the following would cause a positive aggregate demand shock,but leave the aggregate supply curve unaffected?

Consider the relationship between the AE curve and the AD curve.A rise in the amount of desired consumption,investment,government purchases,or net exports at any given level of national income

Consider the following news headline: "Threat of widespread labour unrest leads to generous wage increases in several industries." Choose the statement below that best describes the likely macroeconomic effects.

Which of the following statements about the economy's aggregate demand curve is correct? All points on the AD curve

An aggregate demand shock will have a large effect on real GDP and a small effect on the price level when

FIGURE 23-5 Refer to Figure 23-5.Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right,as shown.The simple multiplier is ________ and the multiplier is ________.