Question 1

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) A) and C)

Question 2

If output is above its natural rate, then according to sticky-wage theory

Accepted Answer

A)   workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce less at any given price level.
B)   workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce more at any given price level.
C)   will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.
D)   workers and firms will strike bargains for higher wages. In response to the higher wages firms will produce more at any given price level.E) B) and D)
F) None of the above

Question 3

Other things the same, continued increases in the money supply lead to

Accepted Answer

A)   continued increases in the price level and real GDP.
B)   continued increases in the price level but not continued increases in real GDP.
C)   continued increases in real GDP but not continued increases in the price level.
D)   a one-time permanent increase in both prices and real GDP.E) All of the above
F) A) and B)

Question 4

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

Question 5

If the price level rises above what was expected and nominal wages are fixed, then

Accepted Answer

A)   production becomes less profitable so firms will hire fewer workers.
B)   production becomes less profitable so firms will hire more workers.
C)   production becomes more profitable so firms will hire fewer workers.
D)   production becomes more profitable so firms will hire more workers.E) B) and D)
F) C) and D)

Question 6

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) None of the above
F) All of the above

Question 7

Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to

Accepted Answer

A)   decrease consumption, which shifts aggregate supply left.
B)   decrease consumption, which shifts aggregate demand left.
C)   increase consumption, which shifts aggregate supply right.
D)   increase consumption, which shifts aggregate demand right.E) All of the above
F) B) and D)

Question 8

Figure 33-16. 
-Refer to Figure 33-16. Suppose the economy starts at P3 and Y2. If there is a decrease in government purchases, identify the price and output levels that the economy would move to in the short run.

Accepted Answer

The answer of Figure 33-16. 
-Refer to Figure 33-16. Suppose...

Question 9

Other things the same, a decrease in the price level motivates people to hold

Accepted Answer

A)   less money, so they lend less, and the interest rate rises.
B)   less money, so they lend more, and the interest rate falls.
C)   more money, so they lend more, and the interest rate rises.
D)   more money, so they lend less, and the interest rate falls.E) A) and D)
F) C) and D)

Question 10

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Accepted Answer

A)   the long-run aggregate-supply curve to the right.
B)   the long-run aggregate-supply curve to the left.
C)   the aggregate-demand curve to the left.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 11

Other things the same, when the price level rises, interest rates

Accepted Answer

A)   rise, so firms increase investment.
B)   rise, so firms decrease investment.
C)   fall, so firms increase investment.
D)   fall, so firms decrease investment.E) B) and C)
F) A) and B)

Question 12

In which case can we be sure that real GDP and the price level rise in the short run?

Accepted Answer

A)   foreign economies expand and taxes increase.
B)   foreign economies expand and taxes decrease.
C)   foreign economies contract and taxes decrease.
D)   foreign economies contract and taxes increase.E) None of the above
F) A) and B)

Question 13

The aggregate supply curve is upward sloping in

Accepted Answer

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

Question 14

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 B)
F) All of the above

Question 15

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 D)
F) None of the above

Question 16

An increase in household saving causes consumption to

Accepted Answer

A)   rise and aggregate demand to increase.
B)   rise and aggregate demand to decrease.
C)   fall and aggregate demand to increase.
D)   fall and aggregate demand to decrease.E) A) and C)
F) C) and D)

Question 17

Other things the same, when the government spends more, the initial effect is that

Accepted Answer

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

Question 18

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

Question 19

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) None of the above
F) All of the above

Question 20

Who said about classical economic theory: "the long run is a misleading guide to current affairs. In the long run we are all dead"?

Accepted Answer

The answer of Who said about classical economic theory: "the...

Exam 20: Aggregate Demand and Aggregate Supply

Who said about classical economic theory: "the long run is a misleading guide to current affairs. In the long run we are all dead"?

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Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to

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Which of the following fall during a recession?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

Correct AnswerverifiedShow Answer

An increase in household saving causes consumption to

Correct AnswerverifiedShow Answer

The aggregate supply curve is upward sloping in

Correct AnswerverifiedShow Answer

Tax cuts shift aggregate demand

Correct AnswerverifiedShow Answer

Figure 33-16. -Refer to Figure 33-16. Suppose the economy starts at P3 and Y2. If there is a decrease in government purchases, identify the price and output levels that the economy would move to in the short run.

Correct AnswerverifiedShow Answer

In which case can we be sure that real GDP and the price level rise in the short run?

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

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Other things the same, when the government spends more, the initial effect is that

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If output is above its natural rate, then according to sticky-wage theory

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During recessions

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During recessions

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If the price level rises above what was expected and nominal wages are fixed, then

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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

Other things the same, continued increases in the money supply lead to

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Other things the same, when the price level rises, interest rates

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Other things the same, a decrease in the price level motivates people to hold

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