Question 1

When the aggregate supply curve is vertical, which of the following is not true?

Accepted Answer

A)   The economy is at capacity.
B)   The economy is producing the maximum sustainable level of output.
C)   Any increase in the price level will not cause an increase in aggregate output.
D)   The economy is expanding quickly.

Question 2

Aggregate demand refers to the relationship between

Accepted Answer

A)   prices and the quantity of a good supplied.
B)   the price level and aggregate output demanded.
C)   prices and the quantity of a good demanded.
D)   the price level and aggregate output supplied.

Question 3

________ shifts the Fed rule to the left.

Accepted Answer

A)   An increase in government spending
B)   A decrease in government spending
C)   An increase in the price level
D)   A decrease in the Z factors

Question 4

A decrease in government purchases shifts the ________ curve to the ________.

Accepted Answer

A)   aggregate demand; left
B)   aggregate supply; left
C)   aggregate demand; right
D)   aggregate supply; right

Question 5

Refer to the information provided in Figure 26.7 below to answer the question(s)  that follow.  Figure 26.7
-Refer to Figure 26.7. Which of the following statements characterizes an output level of $400 billion?

Accepted Answer

A)   It is sustainable over the long run without unemployment or deflation.
B)   It is achievable only in the long run.
C)   It is attainable in the short run but it is associated with decreases in the price level.
D)   It can be achieved only if investment is independent of the interest rate.

Question 6

The aggregate demand curve slopes downward because at higher price levels

Accepted Answer

A)   the purchasing power of consumers' assets declines and consumption increases.
B)   producers can get more for what they produce, and they increase production.
C)   the purchasing power of consumers' assets declines and consumption decreases.
D)   the purchasing power of consumers' assets increases and consumption increases.

Question 7

An increase in aggregate demand when the economy is operating at full capacity is likely to result in

Accepted Answer

A)   an increase in both output and the overall price level.
B)   an increase in output but no increase in the overall price level.
C)   an increase in the overall price level but no increase in output.
D)   no increase in either output or the overall price level.

Question 8

If the combination r = 10% and Y = $200 billion is on the IS curve, we know that the combination r = 10% and Y = $300 billion would represent

Accepted Answer

A)   the IS curve shifting to the right.
B)   the IS curve shifting to the left.
C)   a movement up the IS curve.
D)   a movement down the IS curve.

Question 9

To decrease output the government could

Accepted Answer

A)   increase government spending and encourage immigration.
B)   decrease government spending and discourage immigration.
C)   increase government spending and discourage technological advancement.
D)   decrease government spending and encourage technological advancement.

Question 10

Refer to the information provided in Figure 26.1 below to answer the question(s)  that follow.  Figure 26.1
-Refer to Figure 26.1. Between the output levels of $500 billion and $1,000 billion, the relationship between the price level and output is

Accepted Answer

A)   constant.
B)   negative.
C)   positive.
D)   indeterminate.

Question 11

An increase in aggregate demand when the economy is operating at ________ is likely to result in an increase in the overall price level and ________ in output.

Accepted Answer

A)   high levels of output; a large increase
B)   high levels of output; little or no increase
C)   low levels of output; a decrease
D)   low levels of output; no change

Question 12

Refer to the information provided in Figure 26.1 below to answer the question(s)  that follow.  Figure 26.1
-Refer to Figure 26.1. Between the output levels of $1,000 billion and $1,500 billion, the relationship between the price level and output is

Accepted Answer

A)   constant.
B)   negative.
C)   positive.
D)   indeterminate.

Question 13

The slope of the ________ is negative and the slope of the ________ is positive.

Accepted Answer

A)   IS curve; Fed rule
B)   AS curve; IS curve
C)   Fed rule; AD curve
D)   AS curve; AD curve

Question 14

Refer to the information provided in Figure 26.7 below to answer the question(s)  that follow.  Figure 26.7
-Refer to Figure 26.7. The level of aggregate output that can be sustained in the long run without inflation

Accepted Answer

A)   is $800 million.
B)   is $700 million.
C)   is $400 million.
D)   cannot be determined from this information because aggregate demand is not given.

Question 15

Which of the following would cause the short-run aggregate supply curve to shift to the right?

Accepted Answer

A)   higher energy prices
B)   an increase in taxes
C)   increases in government regulation
D)   retired workers reentering the labor force

Question 16

Potential output is equal to

Accepted Answer

A)   long run aggregate demand.
B)   short-run aggregate demand.
C)   short-run aggregate supply.
D)   long-run aggregate supply.

Question 17

To increase output the government could adopt policies that

Accepted Answer

A)   increase aggregate supply and aggregate demand.
B)   decrease aggregate supply and aggregate demand.
C)   increase aggregate supply and decrease aggregate demand.
D)   decrease aggregate supply and increase aggregate demand.

Question 18

A low interest rate discourages planned investment.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the price level cause aggregate demand to increase.

Accepted Answer

A) True 
 B)False

Question 20

What determines the slope of the aggregate supply curve is

Accepted Answer

A)   how fast the price of factors of production respond to changes in the price level.
B)   how much more the economy can produce without any change in the price level.
C)   how fast the output level changes after a technological advance.
D)   none of the above.

Exam 26: The Determination of Aggregate Output, the Price Level, and the Interest Rate

If the combination r = 10% and Y = $200 billion is on the IS curve, we know that the combination r = 10% and Y = $300 billion would represent

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Aggregate demand refers to the relationship between

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Potential output is equal to

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A decrease in government purchases shifts the ________ curve to the ________.

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An increase in aggregate demand when the economy is operating at ________ is likely to result in an increase in the overall price level and ________ in output.

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The slope of the ________ is negative and the slope of the ________ is positive.

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Refer to the information provided in Figure 26.7 below to answer the question(s) that follow. Figure 26.7 -Refer to Figure 26.7. The level of aggregate output that can be sustained in the long run without inflation

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Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1 -Refer to Figure 26.1. Between the output levels of $1,000 billion and $1,500 billion, the relationship between the price level and output is

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An increase in aggregate demand when the economy is operating at full capacity is likely to result in

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To decrease output the government could

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Which of the following would cause the short-run aggregate supply curve to shift to the right?

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The aggregate demand curve slopes downward because at higher price levels

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________ shifts the Fed rule to the left.

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What determines the slope of the aggregate supply curve is

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Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1 -Refer to Figure 26.1. Between the output levels of $500 billion and $1,000 billion, the relationship between the price level and output is

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Refer to the information provided in Figure 26.7 below to answer the question(s) that follow. Figure 26.7 -Refer to Figure 26.7. Which of the following statements characterizes an output level of $400 billion?

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An increase in the price level cause aggregate demand to increase.

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To increase output the government could adopt policies that

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When the aggregate supply curve is vertical, which of the following is not true?

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A low interest rate discourages planned investment.

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A decrease in government purchases shifts the curve to the .

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An increase in aggregate demand when the economy is operating at is likely to result in an increase in the overall price level and in output.

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The slope of the is negative and the slope of the is positive.

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