Question 1

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Accepted Answer

A)   an increase in potential output and no change in the price level.
B)   a decrease in potential output and no change in the price level.
C)   no change in potential output and an increase in the price level.
D)   no change in potential output and a decrease in the price level.

Question 2

All other things unchanged, an increase in government spending will

Accepted Answer

A)   shift the aggregate demand curve to the right.
B)   shift the aggregate demand curve to the left.
C)   make the aggregate demand curve flatter.
D)   make the aggregate demand curve steeper.

Question 3

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

Accepted Answer

A) True 
 B)False

Question 4

An economy adjusts on its own to close an inflationary gap because there is

Accepted Answer

A)   pressure on nominal wages to fall and this shifts the SRAS curve rightward.
B)   pressure on nominal wages to rise and this shifts the SRAS curve rightward.
C)   pressure on nominal wages to fall and this shifts the SRAS curve leftward.
D)   pressure on nominal wages to rise and this shifts the SRAS curve leftward.

Question 5

Which of the following is an explanation for price stickiness?
I. There are adjustment costs associated with changing prices such as the cost of printing new price lists.
II. Worker unions may forbid firms from raising prices for fear that workers may be laid off if demand for output falls.
III. Firms may have explicit long-term contracts to sell their products to other firms at specified prices.

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and III

Question 6

Taking no action and allowing an economy to adjust by itself is called a nonintervention policy.

Accepted Answer

A) True 
 B)False

Question 7

Suppose net exports decreases by $100 million due to a slump in foreign economies. If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

Accepted Answer

A)   Since less will be produced, the aggregate demand does not shift. The aggregate supply curve shifts to the left by $100 million at each price level.
B)   It shifts to the left by $50 million at each price level.
C)   It shifts to the left by $100 million at each price level.
D)   It shifts to the left by $200 million at each price level.

Question 8

Figure 7-6 a while a nonintervention policy would return real GDP to its potential at a price level of Pd. B)  A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. C)  Both policies would return real GDP to its potential at a price level of Pa. D)  Both policies would return real GDP to its potential at a price level of Pd. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

Accepted Answer

A)   A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd.
B)   A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa.
C)   Both policies would return real GDP to its potential at a price level of Pa.
D)   Both policies would return real GDP to its potential at a price level of Pd.

Question 9

Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

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 given

Question 11

Which of the following statements is true of the economy in the long run? In the long run,
I. real GDP eventually moves to potential output because all wages and prices are assumed to be flexible.
II. the economy can achieve its natural level of employment and potential output at any price level.
III. there is no cyclical unemployment.

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and III

Question 12

Figure 7-1 
-Refer to Figure 7-1. What could have caused a movement from point D 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 rate

Question 13

Figure 7-1 1 to AD2? A)  An increase in exports B)  An increase in imports C)  A decrease in defense spending D)  An increase in the domestic price level " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-1. What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?

Accepted Answer

A)   An increase in exports
B)   An increase in imports
C)   A decrease in defense spending
D)   An increase in the domestic price level

Question 14

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Accepted Answer

A)   increase and potential output to increase.
B)   decrease and potential output to decrease.
C)   increase and potential output to remain stable.
D)   decrease and potential output to remain stable.

Question 16

All other things unchanged, a higher exchange rate

Accepted Answer

A)   reduces net exports and aggregate demand.
B)   reduces net exports and increases aggregate demand.
C)   increases net exports and aggregate demand.
D)   increases net exports and reduces aggregate demand.

Question 17

Figure 7-5 1; real GDP = Yp B)  Price level = P1; real GDP = Y1 C)  Price level = P2; real GDP = Y2 D)  Price level = P3; real GDP = Yp " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

Accepted Answer

A)   Price level = P1; real GDP = Yp
B)   Price level = P1; real GDP = Y1
C)   Price level = P2; real GDP = Y2
D)   Price level = P3; real GDP = Yp

Question 18

Which of the following occurs if an economy experiences an inflationary gap?
I. Actual real GDP is less than potential output.
II. Actual real GDP is greater than potential output.
III. Unemployment is less than the natural rate.
IV. Unemployment is greater than the natural rate.

Accepted Answer

A)   I and III
B)   I and IV
C)   II and III
D)   II and IV

Question 19

Figure 7-3 1. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Accepted Answer

A)   The economy will return to its initial equilibrium at point A.
B)   Equilibrium will be re-established at point B with a higher potential output.
C)   Equilibrium will be re-established at point E at a higher price level.
D)   The aggregate demand curve will shift back to AD1.

Question 20

Figure 7-6 
-Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. If policy-makers decide to intervene to close the gap, which of the following can it do?

Accepted Answer

A)   Decrease personal income taxes.
B)   Increase government welfare spending.
C)   Decrease the level of government purchases of goods and services.
D)   Institute investment tax credits to encourage business investment.

Exam 22: Inflation

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Correct Answer
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Figure 7-6 -Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. If policy-makers decide to intervene to close the gap, which of the following can it do?

Correct Answer
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Correct Answer
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Figure 7-6 -Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

Correct Answer
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All other things unchanged, a higher exchange rate

Correct Answer
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The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Correct Answer
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Which of the following occurs if an economy experiences an inflationary gap? I. Actual real GDP is less than potential output. II. Actual real GDP is greater than potential output. III. Unemployment is less than the natural rate. IV. Unemployment is greater than the natural rate.

Correct Answer
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Figure 7-1 -Refer to Figure 7-1. What could have caused the aggregate demand curve to shift to the right from AD₁ to AD₂?

Correct Answer
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Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

Correct Answer
verified

All other things unchanged, an increase in government spending will

Correct Answer
verified

Figure 7-3 -Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Correct Answer
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Taking no action and allowing an economy to adjust by itself is called a nonintervention policy.

Correct Answer
verified

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

Correct Answer
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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 Answer
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Figure 7-5 -Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

Correct Answer
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Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

Correct Answer
verified

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Correct Answer
verified

An economy adjusts on its own to close an inflationary gap because there is

Correct Answer
verified

Suppose net exports decreases by $100 million due to a slump in foreign economies. If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

Correct Answer
verified

Correct Answer
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Exam 22: Inflation

In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to

Correct AnswerverifiedShow Answer

Figure 7-6 -Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. If policy-makers decide to intervene to close the gap, which of the following can it do?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 7-6 -Refer to Figure 7-6. Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

Correct AnswerverifiedShow Answer

All other things unchanged, a higher exchange rate

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment.

Correct AnswerverifiedShow Answer

Which of the following occurs if an economy experiences an inflationary gap? I. Actual real GDP is less than potential output. II. Actual real GDP is greater than potential output. III. Unemployment is less than the natural rate. IV. Unemployment is greater than the natural rate.

Correct AnswerverifiedShow Answer

Figure 7-1 -Refer to Figure 7-1. What could have caused the aggregate demand curve to shift to the right from AD1 to AD2?

Correct AnswerverifiedShow Answer

Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand.

Correct AnswerverifiedShow Answer

All other things unchanged, an increase in government spending will

Correct AnswerverifiedShow Answer

Figure 7-3 -Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

Correct AnswerverifiedShow Answer

Taking no action and allowing an economy to adjust by itself is called a nonintervention policy.

Correct AnswerverifiedShow Answer

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

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

Figure 7-5 -Refer to Figure 7-5. What are the prevailing price level and the output level in the economy?

Correct AnswerverifiedShow Answer

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy.

Correct AnswerverifiedShow Answer

A decrease in aggregate demand, all other things unchanged, in the long run will generate

Correct AnswerverifiedShow Answer

An economy adjusts on its own to close an inflationary gap because there is

Correct AnswerverifiedShow Answer

Suppose net exports decreases by $100 million due to a slump in foreign economies. If the the value of the multiplier is 2, what happens to the domestic aggregate demand curve?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Figure 7-1 -Refer to Figure 7-1. What could have caused the aggregate demand curve to shift to the right from AD₁ to AD₂?

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