Question 1

Suppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify the curves that are affected, and which way these curves would shift.

Accepted Answer

The aggregate demand...

Question 2

Most economists use the aggregate demand and aggregate supply model primarily to analyze

Accepted Answer

A)   short-run fluctuations in the economy.
B)   the effects of macroeconomic policy on the prices of individual goods.
C)   the long-run effects of international trade policies.
D)   productivity and economic growth.E) B) and C)
F) A) and D)

Question 3

Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?

Accepted Answer

The answer of Who wrote the 1936 book titled The...

Question 4

Most economists believe that classical theory describes the world in the short run but not in the long run.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the money supply, a tax decrease, 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) A) and B)
F) A) and C)

Question 6

The model of aggregate demand and aggregate supply

Accepted Answer

A)   is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.
B)   is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model.
C)   is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted.
D)   is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted.E) All of the above
F) B) and D)

Question 7

Which of the following would increase the price level?

Accepted Answer

A)   an increase in the money supply.
B)   an increase in taxes.
C)   a decrease in the expected price level.
D)   a decrease in the natural rate of unemployment.E) A) and B)
F) A) and C)

Question 8

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Accepted Answer

There are occasional short-lived periods...

Question 9

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

Accepted Answer

A) True 
 B)False

Question 10

Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

Accepted Answer

A)   as people revise their price-level expectations upward, firms and workers strike bargains for higher nominal wages.
B)   as people revise their price-level expectations upward, firms and workers strike bargains for lower nominal wages.
C)   as people revise their price-level expectations downward, firms and workers strike bargains for higher nominal wages.
D)   as people revise their price-level expectations downward, firms and workers strike bargains for lower nominal wages.E) A) and B)
F) A) and C)

Question 11

Briefly state the three key facts about economic fluctuations.

Accepted Answer

1) Economic fluctuations are i...

Question 12

Tax cuts shift aggregate demand

Accepted Answer

A)   right as do increases in government spending.
B)   right while increases in government spending shift aggregate demand left.
C)   left as do increases in government spending.
D)   left while increases in government spending shift aggregate demand right.E) B) and C)
F) A) and D)

Question 13

Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

Accepted Answer

See graph. <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Over time, technological adv...

Question 14

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Accepted Answer

A)   increased consumption, which shifts the aggregate-demand curve right.
B)   increased consumption, which shifts the aggregate-demand curve left.
C)   decreased consumption, which shifts the aggregate-demand curve right.
D)   decreased consumption, which shifts the aggregate-demand curve left.E) None of the above
F) All of the above

Question 15

If the government repeals an investment tax credit and increases income taxes,

Accepted Answer

A)   real GDP rises, and the price level could rise, fall, or stay the same.
B)   real GDP falls, and the price level could rise, fall, or stay the same.
C)   real GDP and the price level rise.
D)   real GDP and the price level fall.E) None of the above
F) C) and D)

Question 16

When the price level falls the quantity of

Accepted Answer

A)   consumption goods demanded rises, while the quantity of net exports demanded falls.
B)   consumption goods demanded and the quantity of net exports demanded both rise.
C)   consumption goods demanded and the quantity of net exports demanded both fall.
D)   consumption goods demanded falls, while the quantity of net exports demand rises.E) All of the above
F) B) and D)

Question 17

The effects of a higher than expected price level are shown by

Accepted Answer

A)   shifting the short-run aggregate supply curve right.
B)   shifting the short-run aggregate supply curve left.
C)   moving to the right along a given aggregate supply curve.
D)   moving to the left along a given aggregate supply curve.E) A) and C)
F) B) and C)

Question 18

From 1995 to 1999 there was a dramatic rise in stock prices. If this rise made people feel wealthier, then it would have shifted

Accepted Answer

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

Question 19

Which of the following can explain the upward slope of the short-run aggregate supply curve?

Accepted Answer

A)   nominal wages are slow to adjust to changing economic conditions
B)   as the price level falls, the exchange rate falls
C)   an increase in the money supply lowers the interest rate
D)   an increase in the interest rate increases investment spendingE) B) and D)
F) B) and C)

Question 20

As the price level rises

Accepted Answer

A)   people are more willing to lend, so interest rates rise.
B)   people are more willing to lend, so interest rates fall.
C)   people are less willing to lend, so interest rates fall.
D)   people are less willing to lend, so interest rates rise.E) All of the above
F) C) and D)

Exam 15: Aggregate Demand and Aggregate Supply

Which of the following can explain the upward slope of the short-run aggregate supply curve?

Correct AnswerverifiedShow Answer

The effects of a higher than expected price level are shown by

Correct AnswerverifiedShow Answer

Suppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify the curves that are affected, and which way these curves would shift.

Correct AnswerverifiedThe aggregate demand...View AnswerShow Answer

Most economists use the aggregate demand and aggregate supply model primarily to analyze

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run equilibrium and the government decreases its expenditures. Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

Correct AnswerverifiedShow Answer

If the government repeals an investment tax credit and increases income taxes,

Correct AnswerverifiedShow Answer

As the price level rises

Correct AnswerverifiedShow Answer

Most economists believe that classical theory describes the world in the short run but not in the long run.

Correct AnswerverifiedShow Answer

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

Correct AnswerverifiedShow Answer

The long-run trend in real GDP is upward. How is this possible given business cycles? What explains the upward trend?

Correct AnswerverifiedThere are occasional short-lived periods...View AnswerShow Answer

Tax cuts shift aggregate demand

Correct AnswerverifiedShow Answer

Illustrate the classical analysis of growth and inflation with aggregate demand and long-run aggregate supply curves.

Correct AnswerverifiedSee graph. Over time, technological adv...View AnswerShow Answer

Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the money supply, a tax decrease, 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

Who wrote the 1936 book titled The General Theory of Employment, Interest, and Money?

Correct AnswerverifiedShow Answer

From 1995 to 1999 there was a dramatic rise in stock prices. If this rise made people feel wealthier, then it would have shifted

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory, changes in the money supply change real GDP but not the price level.

Correct AnswerverifiedShow Answer

When the price level falls the quantity of

Correct AnswerverifiedShow Answer

The model of aggregate demand and aggregate supply

Correct AnswerverifiedShow Answer

Briefly state the three key facts about economic fluctuations.

Correct Answerverified1) Economic fluctuations are i...View AnswerShow Answer

Which of the following would increase the price level?

Correct AnswerverifiedShow Answer

Correct Answer
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The aggregate demand...
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Correct Answer
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There are occasional short-lived periods...
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Correct Answer
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See graph. Over time, technological adv...
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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
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Correct Answer
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Correct Answer
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1) Economic fluctuations are i...
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Correct Answer
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