Question 1

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Accepted Answer

A) True 
 B)False

Question 2

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Accepted Answer

A)   increased, so it would increase production.
B)   increased, so it would decrease production.
C)   decreased, so it would increase production.
D)   decreased, so it would decrease production.E) A) and B)
F) C) and D)

Question 3

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Accepted Answer

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

Question 4

Real GDP

Accepted Answer

A)   moves in the same direction as unemployment.
B)   is not adjusted for inflation.
C)   measures economic activity and real income.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 5

According to classical macroeconomic theory, changes in the money supply affect

Accepted Answer

A)   nominal variables and real variables.
B)   nominal variables, but not real variables.
C)   real variables, but not nominal variables.
D)   neither nominal nor real variables.E) A) and B)
F) A) and C)

Question 6

Aggregate demand shifts left when the government

Accepted Answer

A)   decreases taxes.
B)   cuts military expenditures.
C)   creates a new investment tax credit
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 7

Stagflation results from continued decreases in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

Most economist agree that money changes real GDP in both the short and long run.

Accepted Answer

A) True 
 B)False

Question 9

The classical dichotomy refers to the separation of

Accepted Answer

A)   variables that move with the business cycle and variables that do not.
B)   changes in money and changes in government expenditures.
C)   decisions made by the public and decisions made by the government.
D)   real and nominal variables.E) A) and B)
F) A) and C)

Question 10

Which of the following shifts short-run aggregate supply right?

Accepted Answer

A)   an increase in the minimum wage
B)   an increase in immigration from abroad
C)   an increase in the price of oil
D)   an increase in the actual price levelE) A) and D)
F) A) and C)

Question 11

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Accepted Answer

A)   increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.
B)   decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve.
C)   increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve.
D)   decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.E) A) and B)
F) B) and C)

Question 12

All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output supplied increases when the actual price level exceeds the expected price level.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the price level and a reduction in output would result from

Accepted Answer

A)   an increase in the money supply.
B)   an increase in government expenditures.
C)   a fall in stock prices.
D)   bad weather in farm states.E) B) and C)
F) A) and D)

Question 14

When the dollar depreciates, each dollar buys

Accepted Answer

A)   more foreign currency, and so buys more foreign goods.
B)   more foreign currency, and so buys fewer foreign goods.
C)   less foreign currency, and so buys more foreign goods.
D)   less foreign currency, and so buys fewer foreign goods.E) A) and B)
F) All of the above

Question 15

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

Accepted Answer

A)   the price level and real output
B)   the real rate of interest and the money supply
C)   government expenditures and taxes
D)   the saving rate and net exportsE) B) and D)
F) A) and B)

Question 16

Changes in the price level affect which components of aggregate demand?

Accepted Answer

A)   only consumption and investment
B)   only consumption and net exports
C)   only investment
D)   consumption, investment, and net exportsE) B) and D)
F) C) and D)

Question 17

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) All of the above
F) None of the above

Question 18

Other things the same, an increase in the price level makes the dollars people hold worth

Accepted Answer

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

Question 19

Other things the same, as the price level falls, a country's exchange rate

Accepted Answer

A)   and interest rates rise.
B)   and interest rates fall.
C)   falls and interest rates rise.
D)   rises and interest rates fall.E) A) and D)
F) B) and C)

Question 20

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

Accepted Answer

A)   aggregate demand right.
B)   aggregate demand left.
C)   aggregate supply right.
D)   aggregate supply left.E) A) and D)
F) A) and C)

Exam 15: Aggregate Demand and Aggregate Supply

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Increased output and prices in the United States in the early 1940s were mostly the result of increased government expenditures.

Correct AnswerverifiedShow Answer

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

Correct AnswerverifiedShow Answer

Most economist agree that money changes real GDP in both the short and long run.

Correct AnswerverifiedShow Answer

Changes in the price level affect which components of aggregate demand?

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level makes the dollars people hold worth

Correct AnswerverifiedShow Answer

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Correct AnswerverifiedShow Answer

Real GDP

Correct AnswerverifiedShow Answer

Other things the same, as the price level falls, a country's exchange rate

Correct AnswerverifiedShow Answer

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

Correct AnswerverifiedShow Answer

An increase in the price level and a reduction in output would result from

Correct AnswerverifiedShow Answer

Stagflation results from continued decreases in aggregate demand.

Correct AnswerverifiedShow Answer

When the dollar depreciates, each dollar buys

Correct AnswerverifiedShow Answer

Which of the following shifts short-run aggregate supply right?

Correct AnswerverifiedShow Answer

The classical dichotomy refers to the separation of

Correct AnswerverifiedShow Answer

All explanations for the upward slope of the short-run aggregate supply curve suppose that the quantity of output supplied increases when the actual price level exceeds the expected price level.

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, changes in the money supply affect

Correct AnswerverifiedShow Answer

Aggregate demand shifts left when the government

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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