Question 1

If aggregate demand shifts left, then in the short run

Accepted Answer

A)  the price level and real GDP both rise.
B)  the price level rises and real GDP falls.
C)  the price level falls and real GDP rises.
D)  the price and real GDP both fall.E) A) and B)
F) All of the above

Question 2

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 C)
F) A) and B)

Question 3

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Accepted Answer

A)  the wealth effect and the interest-rate effect
B)  the wealth effect but not the interest-rate effect
C)  the interest-rate effect but not the wealth effect
D)  neither the wealth-effect nor the interest rate effectE) B) and C)
F) A) and D)

Question 4

Which of the following typically rises during a recession?

Accepted Answer

A)  consumption
B)  unemployment
C)  corporate profits
D)  automobile salesE) None of the above
F) C) and D)

Question 5

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

Accepted Answer

A)  both an increase in the capital stock and an increase in the price level
B)  an increase in the capital stock, but not an increase in the price level
C)  an increase in the money supply, but not an increase in the capital stock
D)  neither an increase in the money supply nor an increase in the capital stockE) A) and D)
F) A) and B)

Question 6

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

Question 7

The model of aggregate demand and aggregate supply explains the relationship between

Accepted Answer

A)  the price and quantity of a particular good.
B)  unemployment and output.
C)  wages and employment.
D)  real GDP and the price level.E) A) and D)
F) A) and C)

Question 8

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Accepted Answer

A) True 
 B)False

Question 9

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) B) and C)
F) None of the above

Question 10

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Accepted Answer

A)  rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.
B)  rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
C)  fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.
D)  fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.E) None of the above
F) B) and C)

Question 11

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Accepted Answer

A) True 
 B)False

Question 12

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 13

Figure 20-2. 1 to AS2 A) could be caused by an outbreak of war in the Middle East. B) could be caused by a decrease in the expected price level. C) causes the economy to experience an increase in the unemployment rate. D) causes the economy to experience stagflation." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS1 to AS2

Accepted Answer

A)  could be caused by an outbreak of war in the Middle East.
B)  could be caused by a decrease in the expected price level.
C)  causes the economy to experience an increase in the unemployment rate.
D)  causes the economy to experience stagflation.E) All of the above
F) C) and D)

Question 14

Which of the following shifts both short-run and long-run aggregate supply left?

Accepted Answer

A)  a decrease in the actual price level
B)  a decrease in the expected price level
C)  a decrease in the capital stock
D)  a decrease in the money supplyE) A) and B)
F) A) and C)

Question 15

In 1986, OPEC countries increased their production of oil. This caused

Accepted Answer

A)  the price level to rise.
B)  aggregate supply to shift right.
C)  unemployment to rise.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 16

The aggregate demand and aggregate supply graph has the

Accepted Answer

A)  quantity of output on the horizontal axis. Output is best measured by real GDP.
B)  quantity of output on the horizontal axis. Output is best measured by nominal GDP.
C)  quantity of output on the vertical axis. Output is best measured by real GDP.
D)  quantity of output on the vertical axis. Output is best measured by nominal GDP.E) A) and B)
F) A) and C)

Question 17

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Accepted Answer

A)  decreases the real value of money.
B)  increases the real value of the dollar in foreign exchange markets.
C)  decreases the interest rate.
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 18

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 19

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.
-Refer to Pessimism. How is the new long-run equilibrium different from the original one?

Accepted Answer

A)  both price and real GDP are higher.
B)  both price and real GDP are lower.
C)  the price level is the same and GDP is lower.
D)  the price level is lower and real GDP is the same.E) B) and C)
F) A) and D)

Question 20

U.S. Financial Crisis
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on.
-Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?

Accepted Answer

A)  the supply of dollars would shift right and the exchange rate would rise.
B)  the supply of dollars would shift right and the exchange rate would fall.
C)  the supply of dollars would shift left and the exchange rate would rise.
D)  None of the above is correct.E) All of the above
F) None of the above

Exam 20: Aggregate Demand and Aggregate Supply

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Correct Answer
verified

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Correct Answer
verified

Figure 20-2. -Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS₁ to AS₂

Correct Answer
verified

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

If aggregate demand shifts left, then in the short run

Correct Answer
verified

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 Answer
verified

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Correct Answer
verified

Correct Answer
verified

The model of aggregate demand and aggregate supply explains the relationship between

Correct Answer
verified

The aggregate demand and aggregate supply graph has the

Correct Answer
verified

U.S. Financial Crisis Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. -Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?

Correct Answer
verified

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

Correct Answer
verified

In 1986, OPEC countries increased their production of oil. This caused

Correct Answer
verified

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

Correct Answer
verified

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Correct Answer
verified

Which of the following shifts both short-run and long-run aggregate supply left?

Correct Answer
verified

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

Correct Answer
verified

Which of the following typically rises during a recession?

Correct Answer
verified

Exam 20: Aggregate Demand and Aggregate Supply

Which of the following effects provide incentives for consumers to spend less when the price level rises?

Correct AnswerverifiedShow Answer

The aggregate-demand curve shows the quantity of domestic goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Correct AnswerverifiedShow Answer

Figure 20-2. -Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS1 to AS2

Correct AnswerverifiedShow Answer

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

If aggregate demand shifts left, then in the short run

Correct AnswerverifiedShow Answer

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

Although wages, incomes, and interest rates are most often discussed in nominal terms, what matters most are their real values.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The model of aggregate demand and aggregate supply explains the relationship between

Correct AnswerverifiedShow Answer

The aggregate demand and aggregate supply graph has the

Correct AnswerverifiedShow Answer

U.S. Financial Crisis Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. -Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 1986, OPEC countries increased their production of oil. This caused

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

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

Correct AnswerverifiedShow Answer

Which of the following shifts both short-run and long-run aggregate supply left?

Correct AnswerverifiedShow Answer

Increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left.

Correct AnswerverifiedShow Answer

Which of the following typically rises during a recession?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Figure 20-2. -Refer to Figure 20-2. The shift of the short-run aggregate-supply curve from AS₁ to AS₂

Correct Answer
verified

Correct Answer
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