Question 1

If technological change occurs in the economy

Accepted Answer

A)   the long-run aggregate supply curve will shift to the right.
B)   the long-run aggregate supply curve will shift to the left.
C)   we will move up along the long-run aggregate supply curve.
D)   we will move down along the long-run aggregate supply curve.E) A) and B)
F) All of the above

Question 2

The new classical model has as its central idea that

Accepted Answer

A)   wage and price stickiness explain fluctuations in real GDP.
B)   workers and firms have rational expectations.
C)   the Federal Reserve should adopt a monetary growth rule.
D)   shifts in aggregate demand have no impact on real GDP.E) All of the above
F) B) and C)

Question 3

Suppose the U.S.GDP growth rate is faster relative to other countries' GDP growth rates.U.S.imports will therefore increase faster than U.S.exports,and this will

Accepted Answer

A)   move the economy up along a stationary aggregate demand curve.
B)   move the economy down along a stationary aggregate demand curve.
C)   shift the aggregate demand curve to the left.
D)   shift the aggregate demand curve to the right.E) All of the above
F) None of the above

Question 4

When potential GDP increases,long-run aggregate supply also increases.

Accepted Answer

A) True 
 B)False

Question 5

Spending on the war in Afghanistan is essentially categorized as government purchases.How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?

Accepted Answer

A)   They will move the economy down along a stationary aggregate demand curve.
B)   They will move the economy up along a stationary aggregate demand curve.
C)   They will shift the aggregate demand curve to the right.
D)   They will shift the aggregate demand curve to the left.E) A) and B)
F) A) and C)

Question 6

When the price level rises from 110 to 115,the aggregate level of GDP supplied rises from $80 billion to $120 billion.This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

Accepted Answer

A)   negative; short-run
B)   positive; short-run
C)   negative; long-run
D)   positive; long-runE) B) and D)
F) A) and B)

Question 7

If,due to a recession,foreign workers begin to leave the United States to search for temporary work in their home countries until the recession has ended,this will

Accepted Answer

A)   shift the short-run aggregate supply curve of the home country to the left.
B)   shift the short-run aggregate supply curve of the home country to the right.
C)   move the home country's economy up along a stationary short-run aggregate supply curve.
D)   move the home country's economy down along a stationary short-run aggregate supply curve.E) A) and D)
F) C) and D)

Question 8

An increase in the value of which of the following would not increase household wealth?

Accepted Answer

A)   the equity in one's home.
B)   500 shares of Google stock.
C)   the balance in your savings account.
D)   a credit card balance.E) All of the above
F) B) and C)

Question 9

Proponents of the ________ model argue that the short-run supply curve is vertical.

Accepted Answer

A)   the monetarist model
B)   the new classical model
C)   the real business cycle model
D)   the new Keynesian modelE) None of the above
F) All of the above

Question 10

Studies have shown that

Accepted Answer

A)   firms often cut nominal wages during recessions and allow inflation to gradually increase real wages.
B)   firms are reluctant to cut nominal wages during recessions but instead increase workers' nominal wages and allow inflation to gradually increase real wages.
C)   firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages.
D)   firms often freeze workers' nominal wages during a recession and keep the wages frozen well after the recession has ended.E) B) and C)
F) B) and D)

Question 11

Figure 15-1
 
-Refer to Figure 15-1.Ceteris paribus,an increase in government spending would be represented by a movement from

Accepted Answer

A)   AD₁ to AD₂.
B)   AD₂ to AD₁.
C)   point A to point B.
D)   point B to point A.E) All of the above
F) B) and C)

Question 12

Higher personal income taxes

Accepted Answer

A)   increase aggregate demand.
B)   increase disposable income.
C)   decrease aggregate demand.
D)   both B and CE) None of the above
F) B) and D)

Question 13

A negative supply shock in the short run causes

Accepted Answer

A)   the aggregate supply curve to shift to the left.
B)   the price level to fall.
C)   unemployment to fall.
D)   equilibrium real GDP to rise.E) None of the above
F) A) and B)

Question 14

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

Accepted Answer

A)   the price level; real GDP
B)   real GDP; real GDP
C)   the price level; the price level
D)   real GDP; the price levelE) C) and D)
F) A) and B)

Question 15

On average,in the recessions since 1950,it has taken ________ for real GDP to return to its cyclical peak.

Accepted Answer

A)   about 6 months
B)   about 1 year
C)   about 18 months
D)   almost 2.5 yearsE) None of the above
F) A) and D)

Question 16

The aggregate demand curve shows the relationship between the ________ and ________.

Accepted Answer

A)   inflation rate; quantity of real GDP demanded
B)   real interest rate: quantity of real GDP supplied
C)   nominal interest rate; quantity of real GDP demanded
D)   price level; quantity of real GDP demandedE) A) and B)
F) B) and C)

Question 17

Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Accepted Answer

We can make the aggregate demand and agg...

Question 18

Workers expect inflation to rise from 3% to 5% next year.As a result,this should

Accepted Answer

A)   shift the short-run aggregate supply curve to the left.
B)   shift the short-run aggregate supply curve to the right.
C)   move the economy up along a stationary short-run aggregate supply curve.
D)   move the economy down along a stationary short-run aggregate supply curve.E) A) and B)
F) All of the above

Question 19

One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

Accepted Answer

A) True 
 B)False

Question 20

Ceteris paribus,in the long run,a negative supply shock causes

Accepted Answer

A)   the long-run aggregate supply curve to shift to the left.
B)   the price level to rise initially, and then return to its lower level.
C)   unemployment to fall below its short-run level.
D)   equilibrium real GDP to fall.E) A) and D)
F) A) and C)

Exam 15: Aggregate Demand and Aggregate Supply Analysis

If technological change occurs in the economy

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A negative supply shock in the short run causes

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The aggregate demand curve shows the relationship between the ________ and ________.

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Studies have shown that

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When potential GDP increases,long-run aggregate supply also increases.

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Explain how the aggregate demand and aggregate supply model can be made more dynamic.

Correct AnswerverifiedWe can make the aggregate demand and agg...View AnswerShow Answer

The new classical model has as its central idea that

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Proponents of the ________ model argue that the short-run supply curve is vertical.

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Higher personal income taxes

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If,due to a recession,foreign workers begin to leave the United States to search for temporary work in their home countries until the recession has ended,this will

Correct AnswerverifiedShow Answer

Ceteris paribus,in the long run,a negative supply shock causes

Correct AnswerverifiedShow Answer

An increase in aggregate demand causes an increase in ________ only in the short run,but causes an increase in ________ in both the short run and the long run.

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One factor which brought on the recession of 2007-2009 was the financial crisis in 2008.

Correct AnswerverifiedShow Answer

Suppose the U.S.GDP growth rate is faster relative to other countries' GDP growth rates.U.S.imports will therefore increase faster than U.S.exports,and this will

Correct AnswerverifiedShow Answer

Workers expect inflation to rise from 3% to 5% next year.As a result,this should

Correct AnswerverifiedShow Answer

On average,in the recessions since 1950,it has taken ________ for real GDP to return to its cyclical peak.

Correct AnswerverifiedShow Answer

Figure 15-1 -Refer to Figure 15-1.Ceteris paribus,an increase in government spending would be represented by a movement from

Correct AnswerverifiedShow Answer

When the price level rises from 110 to 115,the aggregate level of GDP supplied rises from $80 billion to $120 billion.This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

Correct AnswerverifiedShow Answer

An increase in the value of which of the following would not increase household wealth?

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Spending on the war in Afghanistan is essentially categorized as government purchases.How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?

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The aggregate demand curve shows the relationship between the and .

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We can make the aggregate demand and agg...
View Answer

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An increase in aggregate demand causes an increase in only in the short run,but causes an increase in in both the short run and the long run.

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When the price level rises from 110 to 115,the aggregate level of GDP supplied rises from $80 billion to $120 billion.This relationship represents the relationship between the quantity of real GDP firms are willing to supply and the price level.

Correct Answer
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