Question 1

In the long run, the price level is determined by

Accepted Answer

A)  aggregate demand.
B)  aggregate supply.
C)  the government.
D)  money supply.E) B) and D)
F) None of the above

Question 2

According to the wealth effect, if the average price level rises, the value of consumers'

Accepted Answer

A)  real wealth, nominal wealth, and consumption spending fall.
B)  nominal wealth and consumption spending fall.
C)  real wealth and consumption spending fall.
D)  feel poorer and will save more.E) All of the above
F) B) and D)

Question 3

All the following explain price stickiness except

Accepted Answer

A)  firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent.
B)  the more firms produce, the lower the average cost of production.Therefore, firms are willing not raise prices as long as they can sell more.
C)  firms may be concerned that consumers may be angered by price increases.
D)  firms may be concerned that their rivals may not match their price increases.E) A) and B)
F) B) and C)

Question 4

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

Accepted Answer

A)  a decrease in net exports which will shift the aggregate demand curve to the right.
B)  an increase in net exports which will shift the aggregate demand curve to the right.
C)  a decrease in net exports which will shift the aggregate supply curve to the left.
D)  an increase in net exports which will shift the aggregate supply curve to the right.E) None of the above
F) A) and D) B

Question 5

The interest rate effect suggests that the negative slope of the aggregate demand curve results in part because changes in the price level affect

Accepted Answer

A)  domestic purchases of foreign goods.
B)  the demand for money by households and firms.
C)  the real purchasing power of household wealth.
D)  the level of income.E) C) and D)
F) A) and B) B

Question 6

The use central bank policies to influence the level of economic activity is called

Accepted Answer

A)  banking and finance policy.
B)  financial market policy.
C)  monetary policy.
D)  congressional policy.E) A) and C)
F) A) and B)

Question 7

Figure 7-2
 1 to either AD2 or AD3 A) will change nominal GDP but will not change real GDP in the long run. B) will change real GDP but will not change nominal GDP in the long run. C) will change the potential level of real GDP. D) will change the price level and real GDP." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-2.Changes in aggregate demand from AD1 to either AD2 or AD3

Accepted Answer

A)  will change nominal GDP but will not change real GDP in the long run.
B)  will change real GDP but will not change nominal GDP in the long run.
C)  will change the potential level of real GDP.
D)  will change the price level and real GDP.E) A) and B)
F) B) and C)

Question 8

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable.Which of the following is a reason for this?

Accepted Answer

A)  Firms responded to the decline in output demanded by making quantity adjustments and not price adjustments.
B)  The short-run aggregate supply curve must have also shifted to the left.
C)  The short-run aggregate supply curve must have also shifted to the right.
D)  The short-run aggregate supply curve must be horizontal due to severe wage and price stickiness.E) A) and D)
F) B) and C) B

Question 9

All else constant, a lower price level

Accepted Answer

A)  increases imports and decreases exports, resulting in a downward movement along the economy's aggregate demand curve.
B)  decreases imports and increases exports, resulting in an upward movement along the economy's aggregate demand curve.
C)  increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve.
D)  decreases imports and increases exports, resulting in a downward movement along the economy's aggregate demand curve.E) A) and B)
F) A) and C)

Question 10

Figure 7-2
 
-Refer to Figure 7-2.Based on the figure, we can conclude that

Accepted Answer

A)  in the short run, the economy will always achieve full-employment equilibrium.
B)  in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level.
C)  flexible wages and prices are irrelevant since the LRAS curve is vertical.
D)  in the long run, the aggregate demand curve determines the potential output level.E) B) and C)
F) A) and B)

Question 11

A change in the price level, all other things unchanged, causes

Accepted Answer

A)  a movement along the aggregate demand curve.
B)  a shift of the aggregate demand curve.
C)  both a movement along the aggregate demand curve and a shift in the curve.
D)  no change in the value of assets held in the form of money.E) A) and D)
F) A) and B)

Question 12

Long-run aggregate supply corresponds to the level of potential output.

Accepted Answer

A) True 
 B)False

Question 13

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Accepted Answer

A) True 
 B)False

Question 14

The short run in macroeconomic analysis is a period

Accepted Answer

A)  in which wages and some other prices do not respond to changes in economic conditions.
B)  in which full wage and price flexibility and market adjustment have been achieved.
C)  of less than 12 months.
D)  in which all macroeconomic variables are fixed.E) C) and D)
F) All of the above

Question 15

Figure 7-1
 
-Refer to Figure 7-1.What could have caused a movement from point C to point A?

Accepted Answer

A)  an increase in the economy's general price level
B)  a decrease in investment demand due to lower expected sales
C)  a decrease in capital gains taxes
D)  an increase in money supply that lowers interest rateE) B) and C)
F) C) and D)

Question 16

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

Accepted Answer

A) True 
 B)False

Question 17

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Accepted Answer

A)  real GDP only.
B)  the price level only.
C)  real GDP and the price level.
D)  potential output.E) A) and B)
F) A) and C)

Question 18

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Accepted Answer

A)  The price level measured by the implicit price deflator is on the horizontal axis and real GDP is on the vertical axis.
B)  The price level measured by the consumer price index is on the vertical axis and real GDP is on the horizontal axis.
C)  The price level measured by the implicit price deflator is on the vertical axis and real GDP is on the horizontal axis.
D)  The price level measured by the implicit price deflator is on the vertical axis and employment is on the horizontal axis.E) All of the above
F) None of the above

Question 19

The rise and fall of real GDP over the course of the business cycle suggests that

Accepted Answer

A)  the economy is always at full employment.
B)  the economy may not always be in long-run equilibrium.
C)  the economy is always at its potential output level.
D)  wage and price stickiness ensures that the economy moves from a peak to a trough.E) B) and D)
F) B) and C)

Question 20

Figure 7-2
 
-Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP?

Accepted Answer

A)  $6,250 billion
B)  $7,840 billion
C)  $9,000 billion
D)  cannot be determined from the information givenE) B) and D)
F) B) and C)

Exam 22: Aggregate Demand and Aggregate Supply

In the long run, the price level is determined by

Correct AnswerverifiedShow Answer

According to the wealth effect, if the average price level rises, the value of consumers'

Correct AnswerverifiedShow Answer

All the following explain price stickiness except

Correct AnswerverifiedShow Answer

Suppose an economy's exports increase and its imports decrease.All other things unchanged, this results in

Correct AnswerverifiedB

The interest rate effect suggests that the negative slope of the aggregate demand curve results in part because changes in the price level affect

Correct AnswerverifiedB

The use central bank policies to influence the level of economic activity is called

Correct AnswerverifiedShow Answer

Figure 7-2 -Refer to Figure 7-2.Changes in aggregate demand from AD1 to either AD2 or AD3

Correct AnswerverifiedShow Answer

During the recession of 2001, despite the decrease in aggregate demand, the price level was essentially stable.Which of the following is a reason for this?

Correct AnswerverifiedB

All else constant, a lower price level

Correct AnswerverifiedShow Answer

Figure 7-2 -Refer to Figure 7-2.Based on the figure, we can conclude that

Correct AnswerverifiedShow Answer

A change in the price level, all other things unchanged, causes

Correct AnswerverifiedShow Answer

Long-run aggregate supply corresponds to the level of potential output.

Correct AnswerverifiedShow Answer

The potential level of real GDP is the level of output a society can achieve when labor is employed at its natural level.

Correct AnswerverifiedShow Answer

The short run in macroeconomic analysis is a period

Correct AnswerverifiedShow Answer

Figure 7-1 -Refer to Figure 7-1.What could have caused a movement from point C to point A?

Correct AnswerverifiedShow Answer

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

Correct AnswerverifiedShow Answer

During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced

Correct AnswerverifiedShow Answer

In a graph that shows the aggregate supply and aggregate demand curves, what are the variables on the axes of the graph?

Correct AnswerverifiedShow Answer

The rise and fall of real GDP over the course of the business cycle suggests that

Correct AnswerverifiedShow Answer

Figure 7-2 -Refer to Figure 7-2.If the real GDP is $7,000 billion and the implicit price deflator is 1.12, what is the value of nominal GDP?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
B

Correct Answer
verified

Figure 7-2 -Refer to Figure 7-2.Changes in aggregate demand from AD₁ to either AD₂ or AD₃

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified