Question 1

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Accepted Answer

When people expect the price l...

Question 2

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve

Accepted Answer

A)   is vertical because an equal change in all prices and wages leaves output unaffected.
B)   is positively sloped because price expectations and wages tend to be fixed in the long run.
C)   shifts right when the government raises the minimum wage.
D)   shifts left when the natural rate of unemployment falls.E) B) and C)
F) A) and C)

Question 3

When we say that economic fluctuations are "irregular and unpredictable," we mean that

Accepted Answer

A)   the relationship between output and unemployment is erratic and difficult to characterize.
B)   when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising.
C)   recessions do not occur at regular intervals.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 4

Figure 1  ​ Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift

Accepted Answer

A)   aggregate demand to the left.
B)   short-run aggregate supply to the left.
C)   aggregate demand to the right.
D)   short-run aggregate supply to the right.E) All of the above
F) B) and C)

Question 5

Which of the following explains why production rises in most years?

Accepted Answer

A)   increases in the labour force
B)   increases in the capital stock
C)   advances in technological knowledge
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 6

Recession in the UK will cause

Accepted Answer

A)   an upward movement along the UK aggregate demand curve.
B)   a downward movement along the UK aggregate demand curve.
C)   the UK aggregate supply curve to shift to the right.
D)   the UK aggregate demand curve to shift to the left.E) B) and C)
F) None of the above

Question 7

Which of the following is not a reason why the aggregate demand curve slopes downward?

Accepted Answer

A)   The exchange-rate effect
B)   The wealth effect.
C)   The classical dichotomy/monetary neutrality effects.
D)   The interest-rate effect
E)   All of these answers are reasons why the aggregate-demand curve slopes downward.F) None of the above
G) B) and E)

Question 8

Any factor that increases resource availability causes

Accepted Answer

A)   an increase in aggregate demand.
B)   a decrease in aggregate demand.
C)   an increase in aggregate supply.
D)   a decrease in aggregate supply.E) None of the above
F) A) and C)

Question 9

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

Accepted Answer

A)   Prices fall; output rises.
B)   Prices fall; output falls.
C)   Prices rise; output falls.
D)   Prices rise; output rises.E) B) and C)
F) A) and B)

Question 11

Which of the following will reduce the price level and raise real output?

Accepted Answer

A)   an adjustment of prices to equilibrium
B)   an increase in wage rates
C)   the short-run aggregate supply curve becoming steeper
D)   technical progressE) All of the above
F) C) and D)

Question 12

The natural rate of output is the amount of real GDP produced when

Accepted Answer

A)   the economy is at the natural rate of unemployment.
B)   the economy is at the natural rate of investment.
C)   the economy is at the natural rate of aggregate demand.
D)   there is no unemployment.E) C) and D)
F) A) and B)

Question 13

Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers allow the economy to adjust to the long-run natural rate on its own, people will

Accepted Answer

A)   reduce their price expectations and the short-run aggregate supply will shift right.
B)   raise their price expectations and aggregate demand will shift left.
C)   raise their price expectations and the short-run aggregate supply will shift left.
D)   reduce their price expectations and aggregate demand will shift right.E) B) and D)
F) A) and C)

Question 14

Movements along the aggregate supply curve are caused by changes in

Accepted Answer

A)   technology.
B)   government regulations.
C)   wages and salaries.
D)   the price level.E) B) and D)
F) B) and C)

Question 15

In the long run, an increase in government spending tends to increase output and prices.

Accepted Answer

A) True 
 B)False

Question 16

According to the wealth effect, aggregate demand slopes downward (negatively)  because lower prices

Accepted Answer

A)   increase the value of money holdings and consumer spending increases.
B)   decrease the value of money holdings and consumer spending decreases.
C)   reduce money holdings, increase lending, interest rates fall, and investment spending increases.
D)   increase money holdings, decrease lending, interest rates rise, and investment spending falls.E) A) and B)
F) A) and C)

Question 17

List and discuss three key facts about economic fluctuations.

Accepted Answer

Three key facts about economic fluctuati...

Question 18

When studying the short run, the assumption of money neutrality is

Accepted Answer

A)   not appropriate.
B)   increasingly important.
C)   still relevant but the classical dichotomy no longer holds.
D)   Both b and c are correct.E) A) and D)
F) A) and C)

Question 19

What do most economists believe concerning the relation between the price level and real output?

Accepted Answer

Most economists believe that in the long...

Question 20

A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.

Accepted Answer

A) True 
 B)False

Exam 33: Aggregate Demand and Aggregate Supply

Recession in the UK will cause

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The natural rate of output is the amount of real GDP produced when

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In the long run, an increase in government spending tends to increase output and prices.

Correct AnswerverifiedShow Answer

Movements along the aggregate supply curve are caused by changes in

Correct AnswerverifiedShow Answer

Figure 1 ​ Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift

Correct AnswerverifiedShow Answer

Use sticky-wage theory to explain why an increase in the expected price level shifts the aggregate supply curve.

Correct AnswerverifiedWhen people expect the price l...View AnswerShow Answer

A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.

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What do most economists believe concerning the relation between the price level and real output?

Correct AnswerverifiedMost economists believe that in the long...View AnswerShow Answer

If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

Correct AnswerverifiedShow Answer

Suppose the economy is initially in long-run equilibrium. Then suppose there is an increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

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Which of the following will reduce the price level and raise real output?

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When studying the short run, the assumption of money neutrality is

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According to the wealth effect, aggregate demand slopes downward (negatively) because lower prices

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Which of the following is not a reason why the aggregate demand curve slopes downward?

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When we say that economic fluctuations are "irregular and unpredictable," we mean that

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Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers allow the economy to adjust to the long-run natural rate on its own, people will

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Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve

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Any factor that increases resource availability causes

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List and discuss three key facts about economic fluctuations.

Correct AnswerverifiedThree key facts about economic fluctuati...View AnswerShow Answer

Which of the following explains why production rises in most years?

Correct AnswerverifiedShow Answer

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Figure 1 Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers wished to move output to its long-run natural rate, they should attempt to shift

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Correct Answer
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When people expect the price l...
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Most economists believe that in the long...
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Correct Answer
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Three key facts about economic fluctuati...
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