Question 1

The long-run aggregate supply curve shifts right if

Accepted Answer

A)  either immigration from abroad increases or technology improves.
B)  immigration from abroad increases, but not if technology improves.
C)  technology improves, but not if immigration from abroad increases.
D)  None of the above are correct.E) B) and D)
F) B) and C)

Question 2

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) None of the above

Question 3

Which of the following would cause investment spending to decrease and aggregate demand to shift left?

Accepted Answer

A)  a decrease in the money supply and an investment tax credit.
B)  the repeal of an investment tax credit and an increase in the money supply.
C)  a decrease in the money supply and the repeal of an investment tax credit.
D)  an investment tax credit and an increase in the money supply.E) A) and D)
F) B) and D)

Question 4

The investment component of GDP measures spending on

Accepted Answer

A)  financial assets such as stocks and bonds. During recessions it declines by a relatively large amount.
B)  residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.
C)  financial assets such as stocks and bonds. During recessions it declines by a relatively small amount.
D)  residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively small amount.E) A) and B)
F) A) and C)

Question 5

If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.

Accepted Answer

A) True 
 B)False

Question 6

In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

Accepted Answer

A)  increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.
B)  decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve.
C)  increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve.
D)  decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.E) B) and C)
F) C) and D)

Question 7

Other things the same, if the price level rises, people

Accepted Answer

A)  increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
B)  increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.
C)  decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.
D)  decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases.E) B) and C)
F) C) and D)

Question 8

In the aggregate demand and aggregate supply model, sticky wages, sticky prices, and misperceptions about relative prices

Accepted Answer

A)  have temporary effects.
B)  explain why the short run aggregate supply curve might shift.
C)  explain why the aggregate demand curve is downward sloping.
D)  explain monetary neutrality.E) All of the above
F) A) and B)

Question 9

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. This can be explained

Accepted Answer

A)  only by technological progress.
B)  only by money supply growth.
C)  by technological progress and money supply growth.
D)  None of the above is correct.E) B) and D)
F) A) and C)

Question 10

Refer to Optimism. 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 higher.
D)  the price level is higher and real GDP is the same.E) A) and B)
F) A) and C)

Question 11

As the price level rises, the interest rate

Accepted Answer

A)  falls, so the supply of dollars in the market for foreign currency exchange shifts left.
B)  falls, so the supply of dollars in the market for foreign currency exchange shifts right.
C)  rises, so the supply of dollars in the market for foreign currency exchange shifts left.
D)  rises, so the supply of dollars in the market for foreign currency exchange shifts right.E) B) and C)
F) A) and B)

Question 12

Using the aggregate demand and aggregate supply model, a decrease of what curve is by itself consistent with the changes in prices and output that occurred during the onset of the Great Depression?

Accepted Answer

The answer of Using the aggregate demand and aggregate supply...

Question 13

Figure 33-13. 
-Refer to Figure 33-13. Identify the price and output levels consistent with long-run equilibrium.

Accepted Answer

The answer of Figure 33-13. 
-Refer to Figure 33-13. Identify...

Question 14

Figure 33-6. 1 B) LRAS2 C) LRAS3 D) Both LRAS1 and LRAS3" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

Accepted Answer

A)  LRAS1
B)  LRAS2
C)  LRAS3
D)  Both LRAS1 and LRAS3E) B) and D)
F) A) and B)

Question 15

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 16

Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.?

Accepted Answer

A)  make it rise which by itself would increase U.S. aggregate demand.
B)  make it rise which by itself would decrease U.S. aggregate demand.
C)  make it fall which by itself would increase U.S. aggregate demand.
D)  make it fall which by itself would decrease U.S. aggregate demand.E) A) and B)
F) B) and D)

Question 17

An increase in the interest rate causes investment to

Accepted Answer

A)  rise and the exchange rate to appreciate.
B)  fall and the exchange rate to depreciate.
C)  rise and the exchange rate to depreciate.
D)  fall and the exchange rate to appreciate.E) A) and C)
F) B) and C)

Question 18

Microeconomic substitution is impossible for the economy as a whole because

Accepted Answer

A)  money is a veil.
B)  real GDP measures the total quantity of goods and services produced by all firms in all markets.
C)  the prices of some goods and services adjust sluggishly in response to changing economic conditions.
D)  a lower price level increases real wealth, which stimulates spending by consumers and vice-versa.E) B) and D)
F) A) and B)

Question 19

If the price level falls, the real value of a dollar

Accepted Answer

A)  rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve.
B)  rises, so people will want to buy more. This response shifts aggregate demand to the right.
C)  falls, so people will want to buy less. This response helps explain the slope of the aggregate demand curve.
D)  falls, so people will want to buy less. This response shifts aggregate demand to the left.E) A) and B)
F) A) and C)

Question 20

In the early 1930s in the United States, there was a

Accepted Answer

A)  large increase in output. In the early 1940s there was also a large increase in output.
B)  large increase in output. In the early 1940s there was a large decrease in output.
C)  large decrease in output. In the early 1940s there was a large increase in output.
D)  large decrease in output. In the early 1940s there was also a large decrease in output.E) A) and D)
F) A) and C)

Exam 33: Aggregate Demand and Aggregate Supply

Using the aggregate demand and aggregate supply model, a decrease of what curve is by itself consistent with the changes in prices and output that occurred during the onset of the Great Depression?

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In the aggregate demand and aggregate supply model, sticky wages, sticky prices, and misperceptions about relative prices

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Microeconomic substitution is impossible for the economy as a whole because

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If the price level falls, the real value of a dollar

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Most economists believe that money neutrality

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

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Figure 33-13. -Refer to Figure 33-13. Identify the price and output levels consistent with long-run equilibrium.

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In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

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An increase in the interest rate causes investment to

Correct AnswerverifiedShow Answer

As the price level rises, the interest rate

Correct AnswerverifiedShow Answer

In the early 1930s in the United States, there was a

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Refer to Optimism. How is the new long-run equilibrium different from the original one?

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Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. This can be explained

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Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.?

Correct AnswerverifiedShow Answer

If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.

Correct AnswerverifiedShow Answer

Which of the following would cause investment spending to decrease and aggregate demand to shift left?

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Figure 33-6. -Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

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Other things the same, if the price level rises, people

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve shifts right if

Correct AnswerverifiedShow Answer

The investment component of GDP measures spending on

Correct AnswerverifiedShow Answer

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