Question 1

Aggregate demand includes

Accepted Answer

A)   only the quantity of goods and services households want to buy.
B)   only the quantity of goods and services households and firms want to buy.
C)   only the quantity of goods and services households, firms, and the government want to buy.
D)   the quantity of goods and services households, firms, the government, and customer abroad want to buy.E) A) and B)
F) A) and C)

Question 2

During World War II government expenditures increased almost five-fold and output almost doubled.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following would shift the long-run aggregate supply curve right?

Accepted Answer

A)   both an increase in the capital stock and an increase in the price level
B)   an increase in the capital stock, but not an increase in the price level
C)   an increase in the money supply, but not an increase in the capital stock
D)   neither an increase in the money supply nor an increase in the capital stockE) A) and D)
F) B) and C)

Question 4

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by

Accepted Answer

A)   continuing technological progress alone.
B)   continuing increases in the money supply alone.
C)   continued technological progress and continuing increases in the money supply.
D)   None of the above can explain continuing real GDP growth and inflation.E) A) and C)
F) A) and D)

Question 5

When the price level falls

Accepted Answer

A)   The interest rate falls because people will want to hold more money and so sell bonds.
B)   Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes.
C)   Both A and B are correct.
D)   None of the above are correct.E) C) and D)
F) B) and D)

Question 6

Economic expansions in Germany and Japan would cause

Accepted Answer

A)   the U.S. price level and real GDP to rise.
B)   the U.S. price level and real GDP to fall.
C)   the U.S. price level to rise and real GDP to fall.
D)   the U.S. price level to fall and real GDP to rise.E) C) and D)
F) A) and D)

Question 7

People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?

Accepted Answer

A)   both sticky price theory and sticky wage theory
B)   sticky price theory but not sticky wage theory
C)   sticky wage theory but not sticky price theory
D)   neither sticky wage theory nor sticky price theoryE) A) and B)
F) B) and C)

Question 8

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) A) and B)
F) None of the above

Question 9

Figure 15-1
 
-Refer to Figure 15-1. An increase in the money supply would move the economy from C to

Accepted Answer

A)   B in the short run and the long run.
B)   D in the short run and the long run.
C)   B in the short run and A in the long run.
D)   D in the short run and C in the long run.E) A) and B)
F) B) and D)

Question 10

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

Accepted Answer

A)   because unemployment is low wages will be bid up and short-run aggregate supply will shift right.
B)   because unemployment is low wages will be bid down and short-run aggregate supply will shift right.
C)   because unemployment is high wages will be bid up and short-run aggregate supply will shift right.
D)   because unemployment is high wages will be bid down and short-run aggregate supply will shift right.E) All of the above
F) A) and D)

Question 11

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Accepted Answer

A) True 
 B)False

Question 12

When taxes decrease, consumption

Accepted Answer

A)   increases, so aggregate demand shifts right.
B)   increases, so aggregate supply shifts right.
C)   decreases, so aggregate demand shifts left.
D)   decreases, so aggregate supply shifts left.E) B) and C)
F) B) and D)

Question 13

When the money supply decreases

Accepted Answer

A)   interest rates fall and so aggregate demand shifts right.
B)   interest rates fall and so aggregate demand shifts left.
C)   interest rates rise and so aggregate demand shifts right.
D)   interest rates rise and so aggregate demand shifts left.E) B) and C)
F) All of the above

Question 14

Which of the following decreases in response to the interest-rate effect from an increase in the price level?

Accepted Answer

A)   both investment and consumption
B)   consumption but not investment
C)   investment but not consumption
D)   neither investment nor consumptionE) A) and B)
F) B) and C)

Question 15

If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would

Accepted Answer

A)   rise and aggregate demand would shift left.
B)   rise and aggregate demand would shift right.
C)   fall and aggregate demand would shift left.
D)   fall and aggregate demand would shift right.E) A) and B)
F) A) and C)

Question 16

During the 2008-2009 unemployment rose from about 4.4% to about

Accepted Answer

A)   6%
B)   8%
C)   10%
D)   12%E) B) and C)
F) A) and B)

Question 17

The long-run aggregate supply curve shifts right if

Accepted Answer

A)   the price level rises.
B)   the price level falls.
C)   the capital stock increases.
D)   the capital stock decreases.E) A) and B)
F) A) and C)

Question 18

During the last half of 1980, the U.S. unemployment rate was about 7.5 percent. Historical experience suggests that this is

Accepted Answer

A)   above the natural rate, so real GDP growth was likely low.
B)   above the natural rate, so real GDP growth was likely high.
C)   below the natural rate, so real GDP growth was likely low.
D)   below the natural rate, so real GDP growth was likely high.E) A) and D)
F) A) and C)

Question 19

Which of the following effects helps to explain the slope of the aggregate-demand curve?

Accepted Answer

A)   the exchange-rate effect
B)   the wealth effect
C)   the interest-rate effect
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 20

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.E) A) and B)
F) A) and D)

Exam 15: Aggregate Demand and Aggregate Supply

During World War II government expenditures increased almost five-fold and output almost doubled.

Correct AnswerverifiedShow Answer

Economic expansions in Germany and Japan would cause

Correct AnswerverifiedShow Answer

Figure 15-1 -Refer to Figure 15-1. An increase in the money supply would move the economy from C to

Correct AnswerverifiedShow Answer

During the last half of 1980, the U.S. unemployment rate was about 7.5 percent. Historical experience suggests that this is

Correct AnswerverifiedShow Answer

Which of the following effects helps to explain the slope of the aggregate-demand curve?

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Which of the following decreases in response to the interest-rate effect from an increase in the price level?

Correct AnswerverifiedShow Answer

During the 2008-2009 unemployment rose from about 4.4% to about

Correct AnswerverifiedShow Answer

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted

Correct AnswerverifiedShow Answer

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by

Correct AnswerverifiedShow Answer

People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?

Correct AnswerverifiedShow Answer

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Correct AnswerverifiedShow Answer

If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would

Correct AnswerverifiedShow Answer

Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve shifts right if

Correct AnswerverifiedShow Answer

Which of the following would shift the long-run aggregate supply curve right?

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When taxes decrease, consumption

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When the money supply decreases

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When the price level falls

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Aggregate demand includes

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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

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