Question 1

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will 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 service 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 suppliedE) B) and C)
F) C) and D)

Question 2

During recessions

Accepted Answer

A)   sales and profits fall.
B)   sales and profits rise.
C)   sales rise, profits fall.
D)   profits fall, sales rise.E) A) and C)
F) B) and C)

Question 3

Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

Accepted Answer

A)   real GDP will rise and the price level might rise, fall, or stay the same.
B)   real GDP will fall and the price level might rise, fall, or stay the same.
C)   the price level will rise, and real GDP might rise, fall, or stay the same.
D)   the price level will fall, and real GDP might rise, fall, or stay the same.E) C) and D)
F) A) and C)

Question 4

Which of the following is correct concerning recessions?

Accepted Answer

A)   They come at fairly regular and predictable intervals.
B)   They are associated with comparatively large increases in investment spending.
C)   They are any period when real GDP growth is less than average.
D)   They tend to be associated with rising unemployment rates.E) A) and D)
F) None of the above

Question 5

Which of the following fall during a recession?

Accepted Answer

A)   both retail sales and employment
B)   retail sales but not employment
C)   employment but not retail sales
D)   neither employment nor retail salesE) A) and B)
F) C) and D)

Question 6

Recessions in Canada and Mexico 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) None of the above
F) All of the above

Question 7

Aggregate demand shifts left if

Accepted Answer

A)   government purchases increase and shifts left if stock prices rise.
B)   government purchases increase and shifts left if stock prices fall.
C)   government purchases decrease and shifts left if stock prices rise.
D)   government purchases decrease and shifts left is stock prices fall.E) B) and D)
F) A) and B)

Question 8

When the price level falls

Accepted Answer

A)   households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise.
B)   households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise.
C)   households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall.
D)   None of the above are correct.E) B) and D)
F) All of the above

Question 9

Most economists believe that money neutrality

Accepted Answer

A)   does not hold in the short run.
B)   does not hold in the long run.
C)   does not hold in either the short run or long run.
D)   holds in the short run and the long run.E) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

Most economists believe that in the long...

Question 11

The aggregate demand and aggregate supply graph has

Accepted Answer

A)   the price level on the horizontal axis. The price level can be measured by the GDP deflator.
B)   the price level on the horizontal axis. The price level can be measured by real GDP.
C)   the price level on the vertical axis. The price level can be measured by the GDP deflator.
D)   the price level on the vertical axis. The price level can be measured by GDP.E) B) and C)
F) All of the above

Question 12

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the expected price level shifts short-run aggregate supply to the

Accepted Answer

A)   right, and an increase in the actual price level shifts short-run aggregate supply to the right.
B)   right, and an increase in the actual price level does not shift short-run aggregate supply.
C)   left, and an increase in the actual price level shifts short-run aggregate supply to the left.
D)   left, and an increase in the actual price level does not shift short-run aggregate supply.E) B) and D)
F) A) and B)

Question 14

The initial impact of an increase in an investment tax credit is to shift

Accepted Answer

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

Question 15

The short-run effects of an increase in the expected price level include

Accepted Answer

A)   a lower level of output and a lower price level.
B)   a lower level of output and a higher price level.
C)   a higher level of output and a lower price level.
D)   a higher level of output and a higher price level.E) C) and D)
F) A) and D)

Question 16

The aggregate demand curve shifts left if either

Accepted Answer

A)   speculators gain confidence in U.S. assets or foreign countries enter into recession.
B)   speculators gain confidence in U.S. assets or recessions in foreign countries end.
C)   speculators lose confidence in U.S. assets or foreign countries enter into recession.
D)   speculators lose confidence in U.S. assets or recessions in foreign countries end.E) B) and C)
F) A) and D)

Question 17

People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

Accepted Answer

A)   both sticky price theory and sticky wage theory
B)   sticky price theory but not sticky wage theory
C)   sticky wage theory but not sticky price theory
D)   neither sticky wage theory nor sticky price theoryE) B) and D)
F) C) and D)

Question 18

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

Accepted Answer

A)   the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports.
B)   the real value of money decreases; in turn, interest rates increase, which decreases net exports.
C)   households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods.
D)   households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.E) C) and D)
F) A) and B)

Question 19

A change in the expected price level is likely to cause which of the following?

Accepted Answer

A)   a shift in the short-run aggregate supply curve and long-run aggregate supply curve
B)   a shift in the short run aggregate supply curve
C)   a shift in the aggregate demand curve
D)   a shift in the long-run aggregate supply curveE) C) and D)
F) A) and B)

Question 20

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

Accepted Answer

A) True 
 B)False

Exam 23: Aggregate Demand and Aggregate Supply

Aggregate demand shifts left if

Correct AnswerverifiedShow Answer

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

Correct AnswerverifiedShow Answer

The initial impact of an increase in an investment tax credit is to shift

Correct AnswerverifiedShow Answer

The aggregate demand and aggregate supply graph has

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Which of the following fall during a recession?

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The aggregate demand curve shifts left if either

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Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

Correct AnswerverifiedShow Answer

An increase in the expected price level shifts short-run aggregate supply to the

Correct AnswerverifiedShow Answer

The short-run effects of an increase in the expected price level include

Correct AnswerverifiedShow Answer

When the price level falls

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Which of the following is correct concerning recessions?

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People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

Correct AnswerverifiedShow Answer

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

Correct AnswerverifiedShow Answer

The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that wages are sticky in the short run.

Correct AnswerverifiedShow Answer

Recessions in Canada and Mexico 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

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have

Correct AnswerverifiedShow Answer

A change in the expected price level is likely to cause which of the following?

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During recessions

Correct AnswerverifiedShow Answer

Most economists believe that money neutrality

Correct AnswerverifiedShow Answer

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Most economists believe that in the long...
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