Question 1

Figure 24-3 
-Refer to Figure 24-3. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) All of the above
F) B) and C)

Question 2

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Accepted Answer

A)   They will move the economy up along a stationary aggregate demand curve.
B)   They will move the economy down along a stationary aggregate demand curve.
C)   They will shift the aggregate demand curve to the left.
D)   They will shift the aggregate demand curve to the right.E) None of the above
F) A) and B)

Question 3

The level of long-run aggregate supply is affected by all of the following except

Accepted Answer

A)   changes in the price level.
B)   changes in the technology.
C)   changes in the capital stock.
D)   changes in the number of workers.E) A) and B)
F) C) and D)

Question 4

Why does the short-run aggregate supply curve slope upward?

Accepted Answer

The short-run aggregate supply curve slo...

Question 5

Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

A)   Output will increase.
B)   Prices will decline.
C)   Unemployment will decline.
D)   Short-run aggregate supply will shift to the left.E) A) and B)
F) B) and C)

Question 6

Deflation will

Accepted Answer

A)   increase aggregate demand.
B)   increase the quantity of real GDP demanded.
C)   decrease aggregate demand.
D)   decrease the quantity of real GDP demanded.E) A) and B)
F) B) and C)

Question 7

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result,

Accepted Answer

A)   the long-run aggregate supply curve will shift to the right.
B)   the long-run aggregate supply curve will shift to the left.
C)   the economy will move up along the long-run aggregate supply curve.
D)   the economy will move down along the long-run aggregate supply curve.E) B) and D)
F) All of the above

Question 8

Monetarism is a school of thought put forth by Milton Friedman. He argued that the economy would most likely

Accepted Answer

A)   be below potential GDP.
B)   be at potential GDP.
C)   be unstable.
D)   be above potential GDP.E) C) and D)
F) A) and C)

Question 9

Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> If the aggregate demand curve shifts to...

Question 10

On the long-run aggregate supply curve,

Accepted Answer

A)   an increase in the price level increases the aggregate quantity of GDP supplied.
B)   an increase in the price level reduces the aggregate quantity of GDP supplied.
C)   an increase in the price level has no effect on the aggregate quantity of GDP supplied.
D)   an increase in the price level increases the level of potential GDP.E) A) and C)
F) C) and D)

Question 11

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do the short-run supply curve?

Accepted Answer

A)   It shifted the short-run aggregate supply curve to the left.
B)   It shifted the short-run aggregate supply curve to the right.
C)   It moved the economy up along a stationary short-run aggregate supply curve.
D)   It moved the economy down along a stationary short-run aggregate supply curve.E) A) and D)
F) C) and D)

Question 12

When people became ________ concerned with the underlying value of their houses and became ________ with the expectations of the prices of their houses increasing, a housing bubble occurred.

Accepted Answer

A)   less; less
B)   less; more
C)   more; less
D)   more; moreE) B) and D)
F) B) and C)

Question 13

In the long run,

Accepted Answer

A)   GDP = potential GDP.
B)   unemployment is below its natural rate.
C)   LRAS and SRAS lie on the same line.
D)   unemployment is above its natural rate.E) A) and D)
F) B) and C)

Question 14

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

Accepted Answer

A)   SRAS shifted to the right by more than LRAS.
B)   AD shifted to the right by more than SRAS.
C)   AD shifted to the right by less than SRAS.
D)   SRAS and AD do not shift.E) None of the above
F) A) and C)

Question 15

Figure 24-4 
-Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

Accepted Answer

A)   0.9%
B)   1.8%
C)   2.7%
D)   3.0%E) B) and C)
F) A) and B)

Question 16

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

Accepted Answer

A)   raises; recession; lowers; expansion
B)   lowers; expansion; lowers; recession
C)   raises; expansion; raises; recession
D)   lowers; recession; raises; expansionE) B) and D)
F) None of the above

Question 17

Which of the following models advocate that the quantity of money should be increased at a constant rate?

Accepted Answer

A)   the monetarist model
B)   the new classical model
C)   the real business cycle model
D)   the new Keynesian modelE) A) and C)
F) A) and B)

Question 18

Figure 24-1 
-Refer to Figure 24-1. Ceteris paribus, an increase in interest rates would be represented by a movement from

Accepted Answer

A)   AD1 to AD2.
B)   AD2 to AD1.
C)   point A to point B.
D)   point B to point A.E) A) and B)
F) A) and C)

Question 19

A decrease in aggregate demand results in a(n)  ________ in the ________.

Accepted Answer

A)   recession; long run
B)   expansion; long run
C)   expansion; short run
D)   recession; short runE) None of the above
F) All of the above

Question 20

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Accepted Answer

A)   They will move the economy down along a stationary aggregate demand curve.
B)   They will move the economy up along a stationary aggregate demand curve.
C)   They will shift the aggregate demand curve to the right.
D)   They will shift the aggregate demand curve to the left.E) A) and C)
F) A) and B)

Exam 24: Aggregate Demand and Aggregate Supply Analysis

Figure 24-4 -Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

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Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, an increase in interest rates would be represented by a movement from

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Which of the following models advocate that the quantity of money should be increased at a constant rate?

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In the long run,

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Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

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The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________.

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On the long-run aggregate supply curve,

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Use the dynamic model of aggregate demand and supply to illustrate a situation where the economy is growing but experiencing inflation in the long run.

Correct Answerverified If the aggregate demand curve shifts to...View AnswerShow Answer

The level of long-run aggregate supply is affected by all of the following except

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Figure 24-3 -Refer to Figure 24-3. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?

Correct AnswerverifiedShow Answer

Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Correct AnswerverifiedShow Answer

Monetarism is a school of thought put forth by Milton Friedman. He argued that the economy would most likely

Correct AnswerverifiedShow Answer

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Correct AnswerverifiedShow Answer

Deflation will

Correct AnswerverifiedShow Answer

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

Correct AnswerverifiedShow Answer

The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do the short-run supply curve?

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A decrease in aggregate demand results in a(n) ________ in the ________.

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Why does the short-run aggregate supply curve slope upward?

Correct AnswerverifiedThe short-run aggregate supply curve slo...View AnswerShow Answer

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result,

Correct AnswerverifiedShow Answer

When people became ________ concerned with the underlying value of their houses and became ________ with the expectations of the prices of their houses increasing, a housing bubble occurred.

Correct AnswerverifiedShow Answer

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The automatic mechanism the price level in the case of and the price level in the case of .

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If the aggregate demand curve shifts to...
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A decrease in aggregate demand results in a(n) in the .

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The short-run aggregate supply curve slo...
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When people became concerned with the underlying value of their houses and became with the expectations of the prices of their houses increasing, a housing bubble occurred.

Correct Answer
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