Question 1

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) B) and C)
F) A) and B)

Question 2

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 D)
F) A) and C)

Question 3

Classical economist David Hume observed that as the money supply expanded after gold discoveries

Accepted Answer

A)   prices and output both increased immediately.
B)   prices increased immediately while output remained unchanged.
C)   it took time for prices to rise;in the meantime output was lower.
D)   it took time for prices to rise;in the meantime output was higher.E) A) and D)
F) A) and C)

Question 4

When the actual change in the price level differs from its expected change,which of the following can explain why firms might change their production?

Accepted Answer

A)   both menu costs and mistaking a price level change for a change in relative prices
B)   menu costs but not mistaking a price level change for a change in relative prices
C)   mistaking a price level change for a change in relative price but not menu costs
D)   neither menu costs nor mistaking a price level change for a change in relative pricesE) None of the above
F) B) and C)

Question 5

Figure 33-1. 
-Refer to Figure 33-1.Suppose the economy starts at Y.If there is a fall in aggregate demand,then the economy moves to

Accepted Answer

A)   V in the long run.
B)   W in the long run.
C)   X in the long run.
D)   Z in the long run.E) A) and B)
F) None of the above

Question 6

During recessions

Accepted Answer

A)   workers are laid off.
B)   factories are idle.
C)   firms may find they are unable to sell all they produce.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 7

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

Accepted Answer

A)   increased immigration from abroad
B)   a decrease in the price of an imported natural resource
C)   opening the economy to international trade
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 8

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

Accepted Answer

A)   increases in the labor force
B)   increases in the capital stock
C)   advances in technological knowledge
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 9

Identify the direction of the change during a recession in each of the following: consumption expenditures,investment expenditures,and unemployment.

Accepted Answer

Consumption expendit...

Question 10

List the three reasons for why the aggregate-demand curve slopes downward.

Accepted Answer

The wealth effect,th...

Question 11

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

Accepted Answer

A)   short-run aggregate supply shifts right
B)   short-run aggregate supply shifts left
C)   aggregate demand shifts right
D)   aggregate demand shifts leftE) A) and C)
F) A) and B)

Question 12

In which case can we be sure real GDP rises in the short run?

Accepted Answer

A)   the money supply increases and taxes rise
B)   the money supply increases and taxes fall
C)   the money supply decreases and taxes rise
D)   None of the above are correct.E) None of the above
F) B) and D)

Question 13

Aggregate demand shifts right if at a given price level

Accepted Answer

A)   net exports rise and shifts left if the money supply increases.
B)   net exports rise and shifts right if the money supply increases.
C)   net exports fall and shifts left if the money supply increases.
D)   net exports fall and shifts right if the money supply increases.E) A) and C)
F) A) and B)

Question 14

A decrease in the availability of an important major resource such as oil shifts

Accepted Answer

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

Question 15

In the last half of 1999,the U.S.unemployment rate was about 4 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) C) and D)
F) A) and D)

Question 16

If aggregate demand shifts right,then eventually price level expectations rise.The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,we would expect

Accepted Answer

A)   the price level and real GDP both to rise.
B)   the price level and real GDP both to fall.
C)   the price level and real GDP both to stay the same.
D)   All of the above are possible.E) C) and D)
F) A) and B)

Question 18

The exchange-rate effect is the idea that a higher U.S.price level causes the value of the dollar to increase in foreign exchange markets,and this effect contributes to the downward slope of the aggregate-demand curve.

Accepted Answer

A) True 
 B)False

Question 19

Most economists believe that classical macroeconomic theory is a good description of the economy

Accepted Answer

A)   in neither the short nor long run.
B)   in the short run and in the long run.
C)   in the short run,but not in the long run.
D)   in the long run,but not in the short run.E) B) and D)
F) B) and C)

Question 20

Other things the same,if prices fell when firms and workers were expecting them to rise,then

Accepted Answer

A)   employment and production would rise.
B)   employment would rise and production would fall.
C)   employment would fall and production would rise.
D)   employment and production would fall.E) C) and D)
F) A) and B)

Exam 33: Aggregate Demand and Aggregate Supply

A decrease in the availability of an important major resource such as oil shifts

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

In the last half of 1999,the U.S.unemployment rate was about 4 percent.Historical experience suggests that this is

Correct AnswerverifiedShow Answer

In which case can we be sure real GDP rises in the short run?

Correct AnswerverifiedShow Answer

Identify the direction of the change during a recession in each of the following: consumption expenditures,investment expenditures,and unemployment.

Correct AnswerverifiedConsumption expendit...View AnswerShow Answer

The exchange-rate effect is the idea that a higher U.S.price level causes the value of the dollar to increase in foreign exchange markets,and this effect contributes to the downward slope of the aggregate-demand curve.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 33-1. -Refer to Figure 33-1.Suppose the economy starts at Y.If there is a fall in aggregate demand,then the economy moves to

Correct AnswerverifiedShow Answer

Classical economist David Hume observed that as the money supply expanded after gold discoveries

Correct AnswerverifiedShow Answer

Aggregate demand shifts right if at a given price level

Correct AnswerverifiedShow Answer

Other things the same,if prices fell when firms and workers were expecting them to rise,then

Correct AnswerverifiedShow Answer

List the three reasons for why the aggregate-demand curve slopes downward.

Correct AnswerverifiedThe wealth effect,th...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If aggregate demand shifts right,then eventually price level expectations rise.The increase in price level expectations causes the short-run aggregate-supply curve to shift to the left.

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

Most economists believe that classical macroeconomic theory is a good description of the economy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the actual change in the price level differs from its expected change,which of the following can explain why firms might change their production?

Correct AnswerverifiedShow Answer

During recessions

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium.In a short span of time,there is a decline in the money supply,a tax increase,a pessimistic revision of expectations about future business conditions,and a rise in the value of the dollar.In the short run,we would expect

Correct AnswerverifiedShow Answer

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Consumption expendit...
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The wealth effect,th...
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