Question 1

Which of the following would cause investment spending to decrease and aggregate demand to shift left?

Accepted Answer

A)   a decrease in the money supply and an investment tax credit.
B)   the repeal of an investment tax credit and an increase in the money supply.
C)   a decrease in the money supply and the repeal of an investment tax credit.
D)   an investment tax credit and an increase in the money supply.E) C) and D)
F) All of the above

Question 2

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Accepted Answer

A) True 
 B)False

Question 3

The classical dichotomy and monetary neutrality are represented graphically by

Accepted Answer

A)   an upward-sloping long-run aggregate-supply curve.
B)   a vertical long-run aggregate-supply curve.
C)   an upward-sloping short-run aggregate-curve.
D)   a downward-sloping aggregate-demand curve.E) None of the above
F) A) and B)

Question 4

Figure 33-8. 
-Refer to Figure 33-8. Suppose the economy starts at Z. Stagflation would be consistent with the move to

Accepted Answer

A)   P1 and Y1 .
B)   P1 and Y3 .
C)   P3 and Y1 .
D)   P3 and Y3 .E) A) and B)
F) A) and C)

Question 5

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

Accepted Answer

A)   decreases in both the price level and real GDP.
B)   an increase in real GDP and an increase in the price level.
C)   a decrease in the price level but does not change real GDP.
D)   an increase in the price level but does not change real GDP.E) A) and D)
F) A) and C)

Question 6

In order to understand how the economy works in the short run, we need to

Accepted Answer

A)   study the classical model.
B)   study a model in which real and nominal variables interact.
C)   understand that "money is a veil."
D)   understand that money is neutral in the short run.E) B) and D)
F) All of the above

Question 7

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

Accepted Answer

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

Question 8

The division of variables into real and nominal is a dichotomy assumed by

Accepted Answer

A)   classical economists.
B)   John Maynard Keynes.
C)   the wealth effect.
D)   short-run macroeconomic theory.E) None of the above
F) B) and C)

Question 9

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have

Accepted Answer

A)   higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.
B)   higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.
C)   lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.
D)   lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.E) B) and C)
F) A) and D)

Question 10

When the price level increases, the real value of people's money holdings

Accepted Answer

A)   falls, so they buy more.
B)   falls, so they buy less.
C)   rises, so they buy more.
D)   rises, so they buy less.E) All of the above
F) A) and B)

Question 11

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

Stagflation results from continued decreases in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 13

Economic expansions in Europe and China 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) All of the above
F) A) and B)

Question 14

Which of the following would cause stagflation?

Accepted Answer

A)   rising government expenditures
B)   rising oil prices
C)   a falling money supply
D)   technical progressE) B) and D)
F) B) and C)

Question 15

Figure 33-9. 
-Refer to Figure 33-9. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to

Accepted Answer

A)   P1, Y1.
B)   P2, Y1.
C)   P1, Y2.
D)   P3, Y2.E) None of the above
F) All of the above

Question 16

Other things the same, if the price level rises, then domestic interest rates

Accepted Answer

A)   rise, so domestic residents will want to hold more foreign bonds.
B)   rise, so domestic residents will want to hold fewer foreign bonds.
C)   fall, so domestic residents will want to hold more foreign bonds.
D)   fall, so domestic residents will want to hold fewer foreign bonds.E) A) and B)
F) B) and C)

Question 17

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have

Accepted Answer

A)   higher than desired prices, which increases their sales.
B)   higher than desired prices, which depresses their sales.
C)   lower than desired prices, which increases their sales.
D)   lower than desired prices, which depresses their sales.E) B) and D)
F) B) and C)

Question 18

A recession with inflation is known by what term?

Accepted Answer

The answer of A recession with inflation is known by...

Question 19

The long-run aggregate supply curve would shift right if the government were to

Accepted Answer

A)   reduce the minimum-wage.
B)   make unemployment benefits more generous.
C)   raise taxes on investment spending.
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 20

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

Accepted Answer

Most economists believe that in the long...

Exam 33: Aggregate Demand and Aggregate Supply

In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in short-run aggregate supply.

Correct AnswerverifiedShow Answer

Economic expansions in Europe and China would cause

Correct AnswerverifiedShow Answer

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

Stagflation results from continued decreases in aggregate demand.

Correct AnswerverifiedShow Answer

In order to understand how the economy works in the short run, we need to

Correct AnswerverifiedShow Answer

The division of variables into real and nominal is a dichotomy assumed by

Correct AnswerverifiedShow Answer

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve would shift right if the government were to

Correct AnswerverifiedShow Answer

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have

Correct AnswerverifiedShow Answer

Other things the same, if the price level rises, then domestic interest rates

Correct AnswerverifiedShow Answer

Which of the following would cause stagflation?

Correct AnswerverifiedShow Answer

The logic of the exchange-rate effect begins with a change in the price level changing the interest rate.

Correct AnswerverifiedShow Answer

Which of the following would cause investment spending to decrease and aggregate demand to shift left?

Correct AnswerverifiedShow Answer

A recession with inflation is known by what term?

Correct AnswerverifiedShow Answer

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

Correct AnswerverifiedShow Answer

Figure 33-8. -Refer to Figure 33-8. Suppose the economy starts at Z. Stagflation would be consistent with the move to

Correct AnswerverifiedShow Answer

The classical dichotomy and monetary neutrality are represented graphically by

Correct AnswerverifiedShow Answer

When the price level increases, the real value of people's money holdings

Correct AnswerverifiedShow Answer

Figure 33-9. -Refer to Figure 33-9. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to

Correct AnswerverifiedShow Answer

Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression?

Correct AnswerverifiedShow Answer

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Most economists believe that in the long...
View Answer

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