Question 1

The long-run adjustment to a negative supply shock results in

Accepted Answer

A)   the short-run aggregate supply curve shifting to the right.
B)   the price level rising.
C)   unemployment rising.
D)   workers being willing to accept higher wages.

Question 2

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Accepted Answer

A)   the price level; real GDP
B)   real GDP; real GDP
C)   the price level; the price level
D)   real GDP; the price level

Question 3

Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

Accepted Answer

AD₁, SRAS₁ and LRAS₁ all represent year 1....

Question 4

Workers expect inflation to rise from 3% to 5% next year. As a result, this should

Accepted Answer

A)   shift the short-run aggregate supply curve to the left.
B)   shift the short-run aggregate supply curve to the right.
C)   move the economy up along a stationary short-run aggregate supply curve.
D)   move the economy down along a stationary short-run aggregate supply curve.

Question 5

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

Accepted Answer

A)   It is a horizontal line at $600 billion of GDP.
B)   It is a vertical line at a level of GDP below $600 billion.
C)   It is a vertical line at $600 billion of GDP.
D)   It is a vertical line at a level of GDP above $600 billion.

Question 6

According to the real business cycle model

Accepted Answer

A)   increases in aggregate demand raise GDP.
B)   increases in aggregate demand lower GDP.
C)   increases in aggregate demand do not affect GDP.
D)   increases in aggregate demand lower the price level.

Question 7

When potential GDP increases, long-run aggregate supply also increases.

Accepted Answer

A) True 
 B)False

Question 8

The basic aggregate demand and aggregate supply curve model helps explain

Accepted Answer

A)   short-term fluctuations in real GDP and the price level.
B)   long-term growth.
C)   price fluctuations in an individual market.
D)   output fluctuations in an individual market.

Question 9

Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

Accepted Answer

A)   the leftward shift of the short-run aggregate supply curve that occurs after a recession
B)   the rightward shift of the short-run aggregate supply curve that occurs after a recession
C)   the leftward shift of the aggregate demand curve that occurs after a recession
D)   the rightward shift of the aggregate demand curve that occurs during a recession

Question 10

Figure 24-2 1 to SRAS2. B)  SRAS2 to SRAS1. C)  point A to point B. D)  point B to point A." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

Accepted Answer

A)   SRAS1 to SRAS2.
B)   SRAS2 to SRAS1.
C)   point A to point B.
D)   point B to point A.

Question 11

A decrease in the price level will

Accepted Answer

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

Question 12

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

Accepted Answer

A)   Increases in the price level lower the interest rate and decrease consumption spending.
B)   Increases in the price level lower the interest rate and decrease investment spending.
C)   Increases in the U.S. price level relative to the price level in other countries lowers net exports.
D)   Increases in the price level raise real wealth and lowers consumption spending.

Question 13

The long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 14

An increase in the price level will

Accepted Answer

A)   shift the short-run aggregate supply curve to the left.
B)   shift the short-run aggregate supply curve to the right.
C)   move the economy up along a stationary short-run aggregate supply curve.
D)   move the economy down along a stationary short-run aggregate supply curve.

Question 15

Figure 24-1 1 to AD2. B)  AD2 to AD1. C)  point A to point B. D)  point B to point A." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 24-1. Ceteris paribus, a decrease in firms' expectations of the future profitability of investment spending 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.

Question 16

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

Accepted Answer

A)   Potential real GDP increases continuously.
B)   The aggregate demand curve shifts to the right during most periods.
C)   The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
D)   Aggregate demand and potential real GDP decrease continuously.

Question 17

Because of the slope(s)  of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

Accepted Answer

A)   aggregate demand curve
B)   short-run aggregate supply curve
C)   long-run aggregate supply curve
D)   short-run and long-run aggregate supply curves

Question 18

Which of the following best describes the "interest rate effect"?

Accepted Answer

A)   An increase in the price level raises the interest rate and chokes off government spending.
B)   An increase in the price level lowers the interest rate and chokes off government spending.
C)   An increase in the price level raises the interest rate and chokes off investment and consumption spending.
D)   An increase in the price level lowers the interest rate and chokes off investment and consumption spending.

Question 19

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

Accepted Answer

A)   rises; falls
B)   rises; rises
C)   falls; falls
D)   falls; rises

Question 20

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)   raises; expansion; raises; recession
C)   lowers; expansion; lowers; recession
D)   lowers; recession; raises; expansion

Exam 24: Aggregate Demand and Aggregate Supply Analysis

The basic aggregate demand and aggregate supply curve model helps explain

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When potential GDP increases, long-run aggregate supply also increases.

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Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

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Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2.

Correct Answerverified AD1, SRAS1 and LRAS1 all represent year 1....View AnswerShow Answer

Which of the following best describes the "interest rate effect"?

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When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run.

Correct AnswerverifiedShow Answer

A decrease in the price level will

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Figure 24-1 -Refer to Figure 24-1. Ceteris paribus, a decrease in firms' expectations of the future profitability of investment spending would be represented by a movement from

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Which of the following is one explanation as to why the aggregate demand curve slopes downward?

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The long-run adjustment to a negative supply shock results in

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A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

Correct AnswerverifiedShow Answer

Because of the slope(s) of the ________, we can say that a decrease in the price level leads to a higher level of real GDP demanded.

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The long-run aggregate supply curve is vertical.

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Workers expect inflation to rise from 3% to 5% next year. As a result, this should

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

Correct AnswerverifiedShow Answer

According to the real business cycle model

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Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?

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Figure 24-2 -Refer to Figure 24-2. Ceteris paribus, an increase in productivity would be represented by a movement from

Correct AnswerverifiedShow Answer

An increase in the price level will

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If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

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AD₁, SRAS₁ and LRAS₁ all represent year 1....
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When the price of oil rises unexpectedly, the equilibrium price level and the unemployment rate in the short run.

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A decrease in aggregate demand causes a decrease in only in the short run, but causes a decrease in in both the short run and the long run.

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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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