Question 1

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

Accepted Answer

A)  In the short run, real GDP will rise, and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise, and the price level might rise, fall, or stay the same.
B)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected.
C)  In the short run, the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.
D)  In the short run, the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise, and the price level will fall.E) A) and B)
F) C) and D)

Question 2

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Accepted Answer

A)  Prices and output are affected in both the short and long run.
B)  Prices and output are affected only in the short run.
C)  Prices are affected in the long and short run, but output only in the short run.
D)  Prices are affected in the long and short run, but output only in the long run.E) A) and C)
F) B) and D)

Question 3

Which of the following adjusts to bring aggregate supply and demand into balance?

Accepted Answer

A)  the price level
B)  the real rate of interest
C)  the money supply
D)  technologyE) B) and C)
F) A) and B)

Question 4

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Accepted Answer

A)  The real wage rises, and employment rises.
B)  The real wage rises, and employment falls.
C)  The real wage falls, and employment rises.
D)  The real wage falls, and employment falls.E) B) and D)
F) C) and D)

Question 5

Review the sticky-wage theory of the short-run aggregate-supply curve.
a)Use the sticky-wage theory to explain why the short-run aggregate-supply curve is upward sloping.
b)Based on the same theory,construct an argument to explain why the aggregate-demand curve is downward sloping.Though simple and appealing,why may this theory not completely explain the short-run aggregate-demand curve?

Accepted Answer

a) When the price level increases beyond...

Question 6

What is classical dichotomy?

Accepted Answer

A)  It is the separation of variables that move with the business cycle and variables that do not.
B)  It is the separation of changes in money and changes in government expenditures.
C)  It is the separation of endogenous and exogenous variables.
D)  It is the separation of real and nominal variables.E) A) and C)
F) None of the above

Question 7

According to classical economic theory,which of the following do changes in the money supply affect?

Accepted Answer

A)  real GDP
B)  real interest rates
C)  the price level
D)  unemploymentE) A) and B)
F) A) and C)

Question 8

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Accepted Answer

Variables that fall along with real GDP ...

Question 9

What does a rise in the economy's overall level of prices tend to do?

Accepted Answer

A)  It tends to raise both the quantity demanded and supplied of goods and services.
B)  It tends to raise the quantity demanded of goods and services but lower the quantity supplied.
C)  It tends to lower the quantity demanded of goods and services but raise the quantity supplied.
D)  It tends to lower both the quantity demanded and the quantity supplied of goods and services.E) B) and D)
F) All of the above

Question 10

Which of the following best describes what happens when the price level rises?

Accepted Answer

A)  Households increase foreign bond purchases, and the supply of dollars increases.
B)  Households increase foreign bond purchases, and the supply of dollars decreases.
C)  Households decrease foreign bond purchases, and the supply of dollars increases.
D)  Households decrease foreign bond purchases, and the supply of dollars decreases.E) A) and C)
F) B) and C)

Question 11

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Accepted Answer

A)  They believe that the relative price has decreased, so they increase production.
B)  They believe that the relative price has decreased, so they decrease production.
C)  They believe that the relative price has increased, so they increase production.
D)  They believe that the relative price has increased, so they decrease production.E) B) and D)
F) B) and C)

Question 12

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Accepted Answer

A)  Prices and output are higher.
B)  Prices and output are lower.
C)  Prices are higher and output is the same.
D)  Prices are the same and output is lower.E) None of the above
F) A) and D)

Question 13

Figure 14-1
 
-Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

Accepted Answer

A)  from C to A
B)  from C to B
C)  from C to A to C again
D)  from C to DE) None of the above
F) B) and D)

Question 14

In which of the following situations does investment spending increase?

Accepted Answer

A)  when the price level rises, causing interest rates to rise
B)  when the price level rises, causing interest rates to fall
C)  when the price level falls, causing interest rates to rise
D)  when the price level falls, causing interest rates to fallE) B) and C)
F) A) and D)

Question 15

Aggregate demand shifts to the left if the money supply decreases.

Accepted Answer

A) True 
 B)False

Question 16

This problem compares two economies: Economy A,having a lower elasticity of the short-run aggregate-supply curve,and economy B,with higher elasticity.Draw a graph representing an aggregate-demand curve and two short-run aggregate-supply curves,ASA and ASB,such that ASB is flatter than ASA.Both economies are in long-run equilibrium at the same output and price level.Suppose a sharp decline in the housing prices and a subsequent financial meltdown reduces the aggregate demand by the same amount in both economies.Use the graph to explain the differences in output and price declines in the two economies.What do we learn from this exercise?

Accepted Answer

Consider the next figure.Point Q is the ...

Question 17

Which of the following situations would induce a shift of the aggregate demand to the right?

Accepted Answer

A)  The price level and government expenditures decreased.
B)  The price level decreased, and the government instituted an investment tax credit.
C)  Government expenditures and the money supply increased.
D)  The bank rate increased, and the dollar appreciated.E) B) and C)
F) A) and D)

Question 18

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Accepted Answer

A) True 
 B)False

Question 19

Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to the Scenario 14-2.In the long run,the change in price expectations caused by pessimism leads to which of the following shifts?

Accepted Answer

A)  Long-run AS shifts left.
B)  Long-run AS shifts right.
C)  Short-run AS shifts right.
D)  Short-run AS shifts left.E) C) and D)
F) None of the above

Question 20

Which of the following would cause prices and real GDP to rise in the short run?

Accepted Answer

A)  an increase in the expected price level
B)  an increase in the money supply
C)  a decrease in the capital stock
D)  an import tariffE) A) and B)
F) B) and C)

Exam 14: Aggregate Demand and Aggregate Supply

Which of the following adjusts to bring aggregate supply and demand into balance?

Correct Answer
verified

Aggregate demand shifts to the left if the money supply decreases.

Correct Answer
verified

According to classical economic theory,which of the following do changes in the money supply affect?

Correct Answer
verified

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Correct Answer
verified

Correct Answer
verified

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Correct Answer
verified

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Correct Answer
verified
Variables that fall along with real GDP ...
View Answer

Correct Answer
verified
a) When the price level increases beyond...
View Answer

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Correct Answer
verified

Which of the following would cause prices and real GDP to rise in the short run?

Correct Answer
verified

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

Correct Answer
verified

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Correct Answer
verified

Figure 14-1 -Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

Correct Answer
verified

What does a rise in the economy's overall level of prices tend to do?

Correct Answer
verified

Which of the following best describes what happens when the price level rises?

Correct Answer
verified

In which of the following situations does investment spending increase?

Correct Answer
verified

Which of the following situations would induce a shift of the aggregate demand to the right?

Correct Answer
verified

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Correct Answer
verified

Correct Answer
verified
Consider the next figure.Point Q is the ...
View Answer

What is classical dichotomy?

Correct Answer
verified

Exam 14: Aggregate Demand and Aggregate Supply

Which of the following adjusts to bring aggregate supply and demand into balance?

Correct AnswerverifiedShow Answer

Aggregate demand shifts to the left if the money supply decreases.

Correct AnswerverifiedShow Answer

According to classical economic theory,which of the following do changes in the money supply affect?

Correct AnswerverifiedShow Answer

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because we understand what things change GDP,we can predict recessions with a fair amount of accuracy.

Correct AnswerverifiedShow Answer

What variables besides real GDP tend to decline during recessions? Given the definition of real GDP,argue that declines in these variables are to be expected.

Correct AnswerverifiedVariables that fall along with real GDP ...View AnswerShow Answer

Correct Answerverifieda) When the price level increases beyond...View AnswerShow Answer

Suppose the economy is initially in long-run equilibrium.Which of the following best describes the state of the economy after an increase in aggregate demand?

Correct AnswerverifiedShow Answer

Which of the following would cause prices and real GDP to rise in the short run?

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium.If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers,what would we expect to happen?

Correct AnswerverifiedShow Answer

According to the sticky-wage theory,which of the following is consistent with an unexpected increase in the price level?

Correct AnswerverifiedShow Answer

Figure 14-1 -Refer to the Figure 14-1.How would an increase in the money supply move the economy in the long run?

Correct AnswerverifiedShow Answer

What does a rise in the economy's overall level of prices tend to do?

Correct AnswerverifiedShow Answer

Which of the following best describes what happens when the price level rises?

Correct AnswerverifiedShow Answer

In which of the following situations does investment spending increase?

Correct AnswerverifiedShow Answer

Which of the following situations would induce a shift of the aggregate demand to the right?

Correct AnswerverifiedShow Answer

If the economy is initially in long-run equilibrium,which of the following best describes the effects of a shift in aggregate demand?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedConsider the next figure.Point Q is the ...View AnswerShow Answer

What is classical dichotomy?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Variables that fall along with real GDP ...
View Answer

Correct Answer
verified
a) When the price level increases beyond...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Consider the next figure.Point Q is the ...
View Answer

Correct Answer
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